[Senate Hearing 112-832]
[From the U.S. Government Publishing Office]
S. Hrg. 112-832
REAUTHORIZATION OF THE SBIR AND STTR PROGRAMS
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
FEBRUARY 17, 2011
__________
Printed for the Committee on Small Business and Entrepreneurship
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED TWELFTH CONGRESS
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MARY L. LANDRIEU, Louisiana, Chair
OLYMPIA J. SNOWE, Maine, Ranking Member
CARL LEVIN, Michigan DAVID VITTER, Louisiana
TOM HARKIN, Iowa JAMES E. RISCH, Idaho
JOHN F. KERRY, Massachusetts MARCO RUBIO, Florida
JOSEPH I. LIEBERMAN, Connecticut RAND PAUL, Kentucky
MARIA CANTWELL, Washington KELLY AYOTTE, New Hampshire
MARK L. PRYOR, Arkansas MICHAEL B. ENZI, Wyoming
BENJAMIN L. CARDIN, Maryland SCOTT P. BROWN, Massachusetts
JEANNE SHAHEEN, New Hampshire JERRY MORAN, Kansas
KAY R. HAGAN, North Carolina
Donald R. Cravins, Jr., Democratic Staff Director and Chief Counsel
Wallace K. Hsueh, Republican Staff Director
C O N T E N T S
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Opening Statements
Page
Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana. 1
Snowe, Hon. Olympia J., Ranking Member, and a U.S. Senator from
Maine.......................................................... 11
Brown, Hon. Scott, a U.S. Senator from Massachusetts............. 40
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire.......... 48
Ayotte, Hon. Kelly, a U.S. Senator from New Hampshire............ 48
Witnesses
Wessner, Ph.D., Chalres W., Director of Technology, Innovation,
and Entrepreneurship, The National Academies................... 13
Jacobs, Ph.D., Irwin Mark, Co-Founder, Qualcomm.................. 25
Silver, Matthew, Ph.D., Co-Founder and Chief Executive Officer,
Cambrian Innovation............................................ 40
Hernandez, Joe, Chief Executive Officer, Signal Genetics, on
behalf of the Biotechnology Industry Organization.............. 49
Glover, Jere, Executive Director, Small Business Technology
Council........................................................ 55
Alphabetical Listing and Appendix Material Submitted
Ayotte, Hon. Kelly
Testimony.................................................... 48
Prepared statement........................................... 102
Brown, Hon. Scott
Testimony.................................................... 40
Prepared statement........................................... 103
Glover, Jere
Testimony.................................................... 55
Prepared statement........................................... 57
Hernandez, Joe
Testimony.................................................... 49
Prepared statement........................................... 51
Jacobs, Irwin Mark
Testimony.................................................... 25
Prepared statement........................................... 27
Landrieu, Hon. Mary L.
Testimony.................................................... 1
Prepared statement........................................... 4
Letter dated December 16, 2010, from James C. Greenwood to
Senators Reid and McConnell................................ 105
Letter dated December 16, 2010, from Jere W. Glover to Chair
Landrieu................................................... 107
Letter dated December 16, 2010, from Jere W. Glover to
Senator Snowe.............................................. 108
Letter from Roy Keller to Chair Landrieu..................... 109
Letter dated December 16, 2010, from Todd O. McCracken to
Chair Landrieu............................................. 110
Letter dated December 17, 2010, from Mark G. Heesen to Chair
Landrieu and Senator Snowe................................. 111
Letter dated December 17, 2010, from Kathy Wyatt to Chair
Landrieu................................................... 112
Letter dated December 18, 2010, from Timothy Tardibono to
Senators Reid and McConnell and Representatives Pelosi and
Boehner.................................................... 113
Letter dated December 20, 2010, from Jonathan Cohen to Chair
Landrieu................................................... 114
Letter dated December 17, 2010, from Robert F. Weiss to
Representative Pelosi...................................... 115
Letter dated December 17, 2010, from Scott Hauge to
Representative Pelosi...................................... 116
Letter dated December 20, 2010, from James P. McNamara to
Chair Landrieu............................................. 117
Silver, Matthew
Testimony.................................................... 40
Prepared statement........................................... 43
Shaheen, Hon. Jeanne
Testimony.................................................... 48
Snowe, Hon. Olympia J.
Testimony.................................................... 11
Wessner, Chalres W.
Testimony.................................................... 13
Prepared statement........................................... 17
Article titled ``An Assessment of the SBIR Program''......... 85
REAUTHORIZATION OF THE SBIR AND STTR PROGRAMS
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THURSDAY, FEBRUARY 17, 2011
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 10:06 a.m., in
Room 428-A, Russell Senate Office Building, Hon. Mary L.
Landrieu, Chair of the Committee, presiding.
Present: Senators Landrieu, Cardin, Shaheen, Snowe, Risch,
Rubio, Ayotte, and Brown.
OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S.
SENATOR FROM LOUISIANA
Chair Landrieu.
Chairman Landrieu. Good morning, I would like to call this
hearing of the Senate Small Business and Entrepreneurship
Committee to order this morning. Senator Snowe is on her way,
but for everyone's schedule, I would like to go ahead and
begin. I thank our witnesses for juggling their busy schedules
to be here today for this important hearing.
The purpose of today's hearing is to discuss the
reauthorization of the Federal Government's two largest
research and development programs for small, highly innovative
companies in America, the Small Business Innovation and
Research Program and the Small Business Technology Transfer
Program, better known as SBIR and STTR. These programs, as we
know, were created in 1982 and 1992, respectively, by Senator
Warren Rudman and Congressmen John LaFalce and Ike Skelton, and
many others, but those were our leaders.
Unfortunately, these programs have been operating on short-
term extensions since October of 2008, and it is a high
priority for me, and I hope for this committee, to adopt a
comprehensive, long-term reauthorization bill as soon as
possible, but certainly before this current extension expires
on May 31. The agencies of the Federal Government that
participate in these programs, and the entrepreneurs who depend
on their smooth operation, deserve our best efforts, and three-
month, six-month, nine-month authorizations is not getting the
job done.
Of course, we are not in this mess for lack of trying. This
committee under my leadership and also under the leadership of
Senators Snowe and Kerry has literally tried since 2006 to get
a bill to the President's desk. We have compromised. We have
worked. We have met with a variety of organizations and groups,
trying to find a path forward to provide the long-term
stability and reauthorization these programs deserve, our
businesses need, and our entrepreneurs in America are depending
on.
We have passed bills out of this committee and through the
full Senate numerous times with broad bipartisan support. We
have also successfully attached this reauthorization
legislation to must-pass bills, like the Defense Authorization
Act, with the help of the leadership of that committee.
However, in December of last year, we were able to pass and
send to the House a new compromise that blended the House and
Senate versions as well as we could, bringing advocates
together who had been divided for six years. Representatives of
the two key negotiators of that compromise will testify here
today, the Biotechnology Industry Organization, BIO, and the
Small Business Technology Coalition (SBTC).
In addition to BIO and SBTC, the compromise continues to
have the support of the National Small Business Association,
the U.S. Chamber of Commerce, NFIB, the National Venture
Capital Association, local technology groups, and some
universities, many, actually, including LSU in my home state,
and Louisiana Tech, and the University of Akron, just to name a
few, and I will submit other letters of support for the record.
No other SBIR and STTR authorization bill in Congress up to
this point has had the support of all of these organizations,
so I am hoping with the firepower behind this particular
compromise, we can actually get it to the President's desk in
just a few months. It is a delicate balance, and I really
appreciate everyone's support.
We wanted, of course, a permanent reauthorization. We
thought that would send a very positive signal; however, with
the good work of Senator Coburn and others, we have agreed to
an eight-year reauthorization which we think that we can live
with and meets the goals of some sort of long-term outlook.
This compromise will not only give small businesses the
confidence to invest in these programs, but it will also
preserve the integrity of the program that has a history of
creating jobs in our country.
I am going to briefly go through a few quick examples
because I think it is worth restating for the record. In
Louisiana, we are home to Mezzo Technologies. Mezzo received a
$100,000 grant. It funded some new developments regarding a
radiator that runs cooler, basically to help the Bradley Tank
with all of its deployments into hot places in the world. We
thought that would be very helpful. Not only has it exceeded
its goals in that regard, but now this technology is being
transferred to the racing car industry that can also use
radiators that run much cooler, and I do not need to explain
how that would work on a racetrack.
In St. Francisville, Louisiana, R-BAT received a $100,000
SBIR award to jump-start their research, and these are just two
examples of small businesses. I think they created suits for
our Army and military that also used heating and cooling
technology, opportunities to keep troops safe and cooler in
their deployments.
In the State of Maine, and I am sure Senator Snowe will
talk about others, but I want to mention a small company that
developed controls to monitor the accuracy in medical test
results for leukemia patients. The Maine Molecular Quality
Control firm could not function without the SBIR program when
it first started, but today it is completely supported by its
own revenues.
One of our witnesses today is Dr. Irwin Jacobs, co-founder
of Qualcomm, a very famous company now, but many years ago it
was not so famous. Dr. Jacobs, we are interested in your
testimony explaining how this particular program was helpful
and supportive to your firm. Until then, let me just tell
attendees what the San Diego Chamber of Commerce said about
Qualcomm. According to the San Diego Regional Chamber of
Commerce study in 2008, Qualcomm's total impact to the San
Diego region was approximately $5.5 billion and has supported
more than 26,000 jobs. That is Qualcomm's story, and Dr. Jacobs
will fill in a lot of those details.
Maybe some of you woke up this morning and picked up an
electric toothbrush. You can thank SBIR for keeping the plaque
off of your teeth and gingivitis, too, because the SBIR program
helped fund some initial technology that created the mechanism
inside of those toothbrushes with grants from the SBIR program
that have wide applications now throughout our country.
And finally, in Huntsville, Alabama, GATR Technologies,
with a $1.2 million grant, created an inflatable antenna which
provides immediate emergency Internet access and cell phone
coverage. I was personally shocked in the aftermath of Katrina
to be standing on the platform of the Superdome with an entire
region underwater and literally hundreds of thousands of people
screaming for help, and the phone technology that we had just
five-and-a-half years ago was not sufficient to organize that
evacuation.
Research like this, inflatable technologies, little
balloons that can literally be landed in an area where there
are no roads and no access by train, or when the airports shut
in--Haiti comes to mind or other places--that can give
immediate communication, these are the kinds of things that are
being developed in this country that are not only life-saving
measures, but they produce the kind of innovative technologies
that lead to new companies, growing companies, and jobs for
America.
I am going to submit the rest of my remarks for the record
and call on Senator Snowe, but I would like to congratulate
NiFTy Technology in Ruston, Louisiana, on being awarded this
year the Tibbetts Award for, of course, the founding scientists
that helped to develop this program after 30 years of work with
the National Science Foundation, and they, coincidentally,
received the award, Senator Snowe, this year, so we are very,
very proud of them.
[The prepared statement of Chair Landrieu follows:]
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Chair Landrieu. I would now like to turn it over to Ranking
Member Snowe for her opening statement. Then we will go right
into the record of experts here who can talk from their
perspective about the importance of this program. Senator
Snowe?
OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, RANKING MEMBER, AND
A U.S. SENATOR FROM MAINE
Senator Snowe. Thank you, Chair Landrieu, for holding this
hearing on these two critical programs--the Small Business
Innovation Research Program and the Small Business Technology
Transfer Program.
We are able to accomplish much for our nation's
entrepreneurs through these programs and thank you again for
the bipartisanship that has been the hallmark of this
committee, and once again we demonstrated that with the passage
of this legislation unanimously in the United States Senate in
December. I know that we will have the same success this time
and I am pleased we are able to work out a number of issues
with the Senator from Oklahoma, Senator Coburn.
I also want to welcome all of our distinguished panelists
here today that certainly can speak volumes in testimony about
the value of these programs.
Especially with the unemployment rate hovering around nine
percent for 21 consecutive months, it is all the more important
that we do everything we can to give value to our small
businesses and provide access to innovation and capital. They
remain uncertain about the future, unable to invest, unable to
access lending. So being able to have these programs
reauthorized will help foster an environment of innovative
entrepreneurship by directing more than $2 billion annually in
Federal research and development funding to the nation's small
firms most likely to create jobs and commercialize their
products.
We know that small businesses not only are job generators,
but as the Chair indicated, they are also our most effective
innovators, producing roughly 13 times more patents per
employee than large firms, patents which are at least two times
as likely to be among the top one percent of high-impact
patents. In a budgetary environment where the Small Business
Administration will be required to do more with less spending,
it is crucial that these programs, one of the strongest
examples of a very successful public-partnership, be a key part
of the agency's job creation agenda.
These programs have been front and center in improving our
nation's capacity to innovate. According to a report by the
Information Technology and Innovation Foundation, SBIR-backed
firms have been responsible for roughly 25 percent of the
nation's most crucial innovations over the past decade, ``a
powerful indication that the SBIR program has become a key
force in the innovative economy of the United States.''
In fact, there are a wide range of remarkable success
stories, as demonstrated here today, from Qualcomm, which now
employs 17,500, I think started out with less than a dozen
people when you set it up back in 1985, Dr. Jacobs, to Cambrian
Innovations, which focuses on the next generation of energy
technologies, to Fiber Materials, a company from my home State
of Maine with whom I met Tuesday. They received a Tibbetts
Award, as well, in recognition of their contributions to the
SBIR program. One of Fiber Materials' many creative
technologies is a heat shield used in NASA's Stardust mission,
which spent seven years in space and is now on display at the
Smithsonian National Air and Space Museum.
Regrettably, the SBIR program, as you all know, expired in
September of 2008. It has been subject to a series of ten
short-term temporary extensions since then, plaguing the
program with uncertainty and potentially dissuading some of our
nation's most promising firms from participating in it. That is
why Chair Landrieu and I had extensive negotiations and debate
on the reauthorization of this legislation and I am pleased
that we reached the consensus we did with our colleague,
Senator Coburn, in terms of the length of the reauthorization.
Additionally, the Chair and I worked to increase the allocation
for SBIR from 2.5 percent of an agency's extramural research
and development budget to 3.5 percent over ten years and
doubling the STTR allocation from 0.3 percent over six years.
Our legislation would also codify increased award sizes from
$100,000 to $150,000 for Phase 1 and from $75,000 to $1 million
for Phase 2 in the SBIR program and apply those same levels to
the STTR program.
I will not go on because I think we all understand the
value. We want to hear from our panelists. But suffice it to
say we have broad support, as the Chair indicated.
I would like to conclude my remarks by quoting from
President Reagan when he signed the law establishing the SBIR
program in 1982, which I happened to cosponsor, Madam Chair,
although I hate to date myself----
[Laughter.]
But I think Mr. Glover might have been around.
[Laughter.]
President Reagan said, ``Our nation is blessed with two
important qualities that are often missing in our other
societies, our spirit of entrepreneurship and our capacity for
invention and innovation. These two elements are combined in
the small businesses that dot our land.'' Well, I think
reauthorizing these programs represents a profound opportunity
to reaffirm the truth in this very optimistic vision of America
that the small business community has presented.
Thank you, Madam Chair.
Chair Landrieu. Thank you, Senator Snowe.
Senator Cardin and Senator Rubio have joined us. Do you all
have just very brief remarks? I would like to get to our panel,
but I would love to recognize you.
Senator Cardin. Madam Chair, I just want to recognize Mr.
Hernandez, who is from Rockville, Maryland. He is one of those
companies that we are talking about that has been responsible
for not only creating jobs, but creating innovation in the
biotech field and it is a pleasure to have him before our
committee.
Chair Landrieu. Thank you, Senator Cardin.
Senator Rubio.
Senator Rubio. No opening statement.
Chair Landrieu. Okay. Well, let me introduce our panelists.
Our first panelist is Dr. Charles Wessner. He is the Director
of Technology, Innovation, and Entrepreneurship for the U.S.
National Academies. Dr. Wessner is recognized nationally and
internationally for his expertise on innovation policy,
including public-private partnerships, entrepreneurship, and
early-stage financing. We are very happy to have you, Dr.
Wessner.
Dr. Irwin Mark Jacobs, Co-Founder of Qualcomm, is one of
the world's leaders in the next generation mobile technologies.
They are pioneers of codivision multiple access digital
wireless technology, otherwise known as CDMA. Dr. Jacobs is
here to share a remarkable story about how the SBIR program
actually helped Qualcomm that now employs, what, 16,000 people?
Mr. Jacobs. A little over 17,000.
Chair Landrieu. Seventeen thousand, moving up. How this
program helped them to get started and have the tremendous
impact on the private sector that they are having now.
Dr. Matthew Silver is Co-Founder and President of IntAct
Labs, as has been noted, which is focused on technological and
business innovations with the potential to revolutionize their
domain of applications. Dr. Silver, we thank you for being
here.
Next, Mr. Jere Glover, whose experience with SBIR is wide
ranging. As a former Counsel of the House Small Business
Committee, he directed a comprehensive set of hearings on this
legislation, and we continue to thank Jere for the advice he is
giving to this Chair at this time on a wide variety of issues.
Thank you, Jere.
Finally, as Senator Cardin pointed out, Mr. Joe Hernandez
from the State of Maryland. He has received graduate degrees in
molecular genetics and business administration from the
University of Florida, is currently Chairman for Principia, a
biotechnology company that manufacturers novel and proprietary
molecular imaging agents and other treatments for cancer and
other diseases. I hope I got that right?
We have a very qualified panel with us this morning, and
let us start with Dr. Wessner. Just press the button, and you
might have to speak a little bit more closely into your
microphone.
STATEMENT OF CHARLES W. WESSNER, PH.D., DIRECTOR OF TECHNOLOGY,
INNOVATION, AND ENTREPRENEURSHIP, THE NATIONAL ACADEMIES
Dr. Wessner. Well, please, Senator, may I first thank you
for your kindness in inviting us to talk about our research.
The research is here for anyone who----
Chair Landrieu. I wanted to point out to the committee, Dr.
Wessner, when we say he is the expert, those are all the books
that he has written on this program. So if any of you all have
any questions about anything related to this program, you are
welcome to ask me, but please go to Dr. Wessner or pick up one
of those books, Senator Rubio.
Dr. Wessner. We would also like to recommend this if you
have trouble sleeping at night. These would probably help you
out a little bit.
[Laughter.]
Let me first congratulate you, if I may, Senator. You know,
your committee and the Congress as a whole should be
congratulated on having one of the most innovative, effective,
and adaptive programs for small business the world has ever
seen. And I would particularly like to commend you for
emphasizing the importance of stability to the program. I just
wanted to start there. Thanks very much.
Please interrupt me if you have any trouble hearing me. My
son complains that I speak more loudly than I should, but
sometimes in public, it is not enough.
[Laughter.]
One of the things that is very important for us to keep in
mind, and I say this with great respect, but we have a tendency
here to make references to the global economy, and then once we
talk about legislation and programs, we get completely lost
within the beltway. And it is really important. We have
traveled recently to Germany, to China, to Korea. The rest of
the world is spending really hard. I sometimes feel like we are
talking about the 1930s and about whether we need an army. You
know, we do.
The very good news is that we have a President who has
quite rightly focused our attention on innovation, education,
and competitiveness, so we would agree, I think everyone around
this table, that innovation is good. What is harder to keep in
mind is that it is actually a little harder than it might seem.
Why? Because there is what we would call a valley of death, and
I am very pleased to note here that in no small part thanks to
the work of the National Academies in this area, people are
recognizing that this valley of death exists.
We put a lot of money in federally funded research, but the
problem is, when you have new ideas, they are new and they do
not have supporters, and that exists in large corporations as
well as in small corporations. How do you move this across the
valley?
An important point to keep in mind is you can have really
good ideas that die. They will die because they do not have the
funding. SBIR brings capital to transform these ideas into
innovations. You are not done then, as the gentlemen here on my
right, all of them, can explain. But that gets you the
innovation and the product development and the start of the
uptake.
So how do we get across here? Well, the rest of the world
thinks that the SBIR program is the greatest thing since sliced
bread. I could put up a list of ten countries that have copied
this program, and there is a source of dismay to us. The rest
of the world is copying it, putting it on steroids, while we
are debating it.
So I also want to stress, as you were kind enough to do,
Senator, that we have not just done--there are a lot of think
tanks in this town and I sometimes think they should be called
tanks, because there is not necessarily a lot of thinking that
is involved. They make up their opinion over the weekend. They
make three phone calls.
We did not make three phone calls. We talked to everybody
in town, as some of the gentlemen in this room can tell you. We
looked for best practice. We focused on these four things.
There is really no one we did not talk to, including the
distractors to the program.
We surveyed over 7,000 projects, not seven, not 20, but
7,000. We did 100 case studies. And these are the books that
you have mentioned here. This was our principal finding for the
program, and I want to stress, this is a National Academies
finding. You cannot just say this. There were 30 reviewers on
this, 20 people on the research team, 20 people on the
committee, and this is what they decided.
The vernacular expression here is that the program works.
Of course, one of the important things to keep in mind is that
it works in a variety of ways for a variety of things. Its
focus is where we hurt most. We put almost $150 billion into
research. How much do we put into translational research? How
much do we put in to pool things across to our companies? That
is something, in all sincerity, we really need to work on, not
just with this program but with other programs. As I asked Dr.
Haldron in the roll-out for the budget, $32 billion for NIH,
what do we spend to bring it to the market? It is stable, and
you know that is important. It is large scale. This is really
best practice. You need a portfolio of investments, as any
venture capitalist can tell you. You cannot make just a few
investments and expect to win.
One of the key effects is it is decentralized and adaptive.
When we first started the study, we were alarmed because
everybody was not doing it exactly the same way, and then we
realized that is why it works. The National Institutes of
Health works very hard at assembling--at keeping people
healthy. Part of the defense agencies work hard at
disaggregating them when necessary. So our point here is that
the Navy, the National Science Foundation, and NASA all have
different things.
The program brings in over a third new companies every
year. This is really extraordinary. It is not captured by a
small group. Twenty percent of the companies are created
because of the awards, bringing things out of the research
community into the market, its core function. It encourages
partnering with the university community. This program is great
for universities, and I will be happy to elaborate on that.
Almost 50 percent of the firms that get awards reach the
market, and those numbers are going up. Why are they going up?
Because over time, more and more of these companies are, in
fact, reaching the market. And it is also significant because
SBIR is, in fact, in an early stage, earlier than venture
capital, with risky technologies. And by the way, if I may,
Madam Chairman, one of the key points to keep in mind, if the
program ever hits 100 percent, it will be a bad thing. We do
not want----
Chair Landrieu. I am sorry. Repeat that again, please?
Dr. Wessner. If the program ever hits 100 percent success
rate, that would be a bad thing because that would mean they
are making very conservative----
Chair Landrieu. Correct.
Dr. Wessner [continuing]. Safe, inside the box investments.
Chair Landrieu. There are going to be some failures in
this.
Dr. Wessner. There has to be. The best way I refer to it is
it is like shooting a basketball. You have to shoot to win, and
you cannot be disappointed if you miss a shot, especially me. I
have a lot of experience in that.
But when people say, does the program work, just very
quickly, what does it mean by work? Well, it creates jobs. It
helps solve problems for the military. Sometimes it helps solve
problems--one of our apocryphal jokes is if it makes a better
nuclear trigger, we are really not interested in widespread
commercial success.
[Laughter.]
Innovation success. You already mentioned the toothbrush,
which one might smile at, but that is a $5 billion business.
Distribution--I know this is of interest to you. One of the
key variables for success here is application. It is tightly
linked, by the way, to population, to the number of scientists
and engineers, to the business environment, the level of VC
activity, and above all, to the number and orientation of
universities. Some universities are really into
commercialization, some are not. It is important to note that.
So one of our key recommendations, please, keep the
program. Reauthorize the program. And reauthorize the program
for a long time.
Keep as much flexibility as you can. I would much rather
you make a phone call to a program manager than pass a law.
Draw from best practices, and your bill emphasizes the
importance of that, and we are very pleased to note that there
has been increased learning. One of the things a new
administration, particularly in DARPA, is working hard on is
shortening the cycle time. If we can get the cycle time, the
decision time down to a few months rather than six months or
nine months, the value of the program, and I am sure my
colleagues here in the business world can emphasize that, goes
up enormously.
We need to do more in outreach. There is interesting work
by Sidney Pandos in Silicon Valley that women-owned firms are a
great under-utilized asset in this country. They actually have
a higher success rate than many firms.
We also would really emphasize the importance of funds for
managing the program. As these two programs approach $3 billion
a year, having a little money to evaluate, to assess, to know
whether your experiments are working, to be able to check on
your firms, is increasingly important and would get more buy-in
within the agencies themselves.
Should we put more money into it? This is the Academy
finding. We cannot tell you that this is more important than
the second jet engine for a military aircraft. We cannot tell
you that it is more important than having troops on a cliff--on
a peak in Afghanistan. But we can tell you that if you put more
money in this program, it will be used effectively.
Already, these are some of the things that are happening
within the program as a result of the recommendations we have
made. There has been an explosion of experimentation----
Chair Landrieu. One more minute, Dr. Wessner.
Dr. Wessner. You have been very kind with me already. So
let me close by saying that SBIR is an outstanding innovation
program and I would urge you with all my heart and all our
expertise to reauthorize this program and to get this on the
President's desk for a sustained period of time. That stability
is very important.
Thank you very much for your patience.
[The prepared statement of Dr. Wessner follows:]
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Chair Landrieu. Thank you, Dr. Wessner. I really appreciate
that direct and passionate testimony.
For the members that just came in, the books in front of
the Dr. Wessner are those that he has written on this program
in terms of the evaluation. So we have really got some good
data to guide the work of our committee.
Dr. Jacobs.
STATEMENT OF IRWIN MARK JACOBS, PH.D., CO-FOUNDER, QUALCOMM
Dr. Jacobs. Good morning, Senator Landrieu, Senator Snowe,
members of the committee. It is an honor to appear today to
testify about the role that the Small Business Innovation
Program has played in Qualcomm's success.
My name is Irwin Jacobs. I am Co-Founder of Qualcomm. I
served as CEO and Chairman of the Board of Qualcomm until July
of 2005, our 20th anniversary, and then as Chairman of the
Board until March of 2009. Currently, I do serve on the
Qualcomm Board of Directors. I also serve as Chair of the
National Academy of Engineering and Chair of the Salk Institute
for Biological Studies.
Let me begin by thanking the members of this committee for
the work that you do in promoting policies that assist the
growth of small businesses in this country. As I will discuss
further in my testimony, the SBIR program was among the
critical factors that contributed to Qualcomm's early success,
those factors that took us from a small start-up a quarter of a
century ago with a group of employees that fit in my den to
over 17,500 employees in offices around the world, annual
revenues of over $11.5 billion, and we are currently the
world's largest fabless semiconductor company serving the solar
industry. Earlier this week, Qualcomm was deeply honored to be
inducted into the Small Business Innovation Research Hall of
Fame.
We started small in July 1985 without a specific product in
mind but with a determination to innovate in digital and
wireless communications. Within a few months of our founding,
while driving home to San Diego from a meeting in Los Angeles
where we were consulting on a mobile satellite communications
program, it struck me that codivision multiple access, or CDMA,
which I will not try to explain, might provide a significant
advantage for mobile communications over the more traditional
digital technologies. Klein Gilhousen, one of our other
founders, followed up and discovered additional compelling
advantages.
In those early days, CDMA technology was widely perceived
as possibly promising, but risky, technology. Companies around
the world had studied it, but then dropped it after
encountering technical difficulties that they felt may never be
solvable for commercial equipment, or in any case, not for a
timely deployment. But we were able in 1989 to demonstrate by
building two base stations and a mobile phone that required a
van to drive it around that we had, in fact, solved a number of
the critical problems. CDMA offered a significant increase in
spectrum efficiency, that is, in the number of subscribers that
you can fit in a given allocation of spectrum. With projections
of accelerating user growth and with limited spectrum, carriers
offered support, and urged their manufacturers to work with us.
To cover our costs in developing application specific
integrated circuits for commercial handsets and base stations,
we negotiated with several manufacturers for a licensing
approach that provided an up-front payment that would get
applied to development and then a royalty on CDMA handsets they
might manufacture, should CDMA ever prove successful. In
return, we provided them with a steadily growing portfolio of
patterns.
We were successful with the integrated circuits and then
having CDMA accepted as a second generation standard, along
with TDMA. The first CDMA network went commercial in Hong Kong
in 1995. The next two networks, in South Korea in 1996 and then
several networks here across the United States.
Qualcomm provided handsets, cell phones, manufactured in
San Diego for all of those early systems. That is, we were
shipping phones from San Diego to Hong Kong, from San Diego to
South Korea. Unfortunately, that has changed a little bit
since.
We have focused on advancing the technology, including, for
example, high data rate wireless technology that has become the
basis for third generation wireless, all base----
Chair Landrieu. Dr. Jacobs, I am sorry, but you have 45
seconds. Sorry.
Dr. Jacobs. Thank you--with over one billion users.
During its critical first five years, Qualcomm received
several Phase 1 and Phase 2 SBIR grants that allowed us to
pursue several innovative programs that otherwise would not
have been possible. One involved bandwidth efficient coding
techniques, another a method and hardware to test codes, both
of which have proved useful in our development of CDMA. Another
allowed us to develop an application specific integrated
circuit, a first step in business that now brings in about two-
thirds of our revenue.
So part of our ability to succeed as a young and vulnerable
pioneering company was the funding that we received through the
SBIR program. It did support us at a very critical time in our
development. We urge you to continue the program, and indeed,
increase the funding. Thank you.
[The prepared statement of Dr. Jacobs follows:]
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Chair Landrieu. Thank you so very much.
I see Senator Scott Brown is here, and he wanted to say a
word about Dr. Silver. We have already generally introduced
him, but Senator Brown?
OPENING STATEMENT OF HON. SCOTT P. BROWN, A U.S. SENATOR FROM
MASSACHUSETTS
Senator Brown. Well, first of all, Madam Chair, I want to
thank you for your leadership on the committee and working with
the Ranking Member.
Dr. Silver, it is good to see you here. Dr. Silver is a
small business owner and the Co-Founder and President of
Cambrian Innovation from Somerville, Massachusetts, and he is
here as a witness today. As you know, Massachusetts has a
strong biotech, high tech, pharma presence, and a lot of these
companies were started, as Qualcomm does, as well, with the
funds that we are talking about. So I just wanted to welcome
you.
Dr. Silver. Thank you.
Senator Brown. Thanks for taking the time to come and
testify. I am bouncing back and forth between Armed Services
and here, so if I leave, it is not out of disrespect. So thank
you for what you are doing, and I am excited to be here.
Chair Landrieu. Thank you, Senator.
Dr. Silver.
STATEMENT OF MATTHEW SILVER, PH.D., CO-FOUNDER AND CHIEF
EXECUTIVE OFFICER, CAMBRIAN INNOVATION
Dr. Silver. Well, thank you very much for that
introduction. Chairwoman Landrieu, Ranking Member Snowe,
members of the committee, it is really a tremendous honor to be
able to discuss with you the critical role that the committee
and the SBIR program, in particular, can play in ensuring that
the United States maintains its global leadership position in
innovation.
As a Ph.D. graduate from Massachusetts Institute of
Technology, where I studied new models of innovation, and Co-
Founder and CEO of Cambrian Innovation, an environmental
product development firm located in Somerville, Massachusetts,
I hope that my perspective provides a concrete example of how
the SBIR program can help catalyze the development of an early
stage firm.
In the five years since our founding, Cambrian Innovation,
formerly called IntAct Labs, has been the fortunate recipient
of multiple SBIR awards, enabling accomplishments unimaginable
without the program. Most importantly, we have become a viable
player in a global race to develop next generation water and
energy systems based on newly discovered biocatalytic
processes, and as a result, we are now valued by our private
investors at several times the total SBIR investment.
In this testimony, I am going to briefly discuss our story,
emphasizing three points. First, the government does have an
important role to play in early stage innovation, particularly
where there is high technical risk. Second, the SBIR program is
a very effective vehicle for this role. And third, above all,
the program really needs long-term stability, less bureaucracy,
and faster decision making. The SBIR-STTR Reauthorization Act
accomplishes most of these needs, and I strongly support it.
Cambrian was founded in 2006 with the vision of improving
the way our society processes basic natural resources, starting
at the intersection of energy and water. Treating our nation's
water currently consumes an estimated three percent of our
electricity. We were, therefore, really inspired by recent
scientific discoveries that suggested that some microbes could
generate electricity directly while treating water, and we
imagined a suite of products with the potential to change
society's relationship to water, energy, and fuels.
The main trouble in 2006 was that the discovery alone was
too immature for venture investment. Developing energy and
water technology entails a lot of technical risk associated
with scaling, testing, and iterating designs. Universities do
not carry out this kind of scaling exercise. On the other hand,
most venture firms and even angel investors shy away from
taking on investments with very long lead times and high
technical risk.
Our solution was, in no small part, the SBIR program. After
receiving an initial NASA grant in 2006 to test the applied
science, we were awarded a USDA SBIR in 2008 to apply our
product to agricultural wastewater treatment. The first design
was actually not satisfactory, but the effort did yield a
number of applied discoveries and a better understanding of our
marketbench. Building on this knowledge, we have been fortunate
to receive SBIR awards from the NSF, the EPA, and NASA in 2010
and 2011.
Today, Cambrian is commercializing three potentially game-
changing products associated with renewable biogas generation,
nitrogen removal from wastewater, and surface water sensing,
and we are actively selling feasibility research services. Our
SBIR awards have helped us attract foreign direct investment as
well as hire seven employees and achieve a host of other
accomplishments with respect to intellectual policy and
partnership that I list out in the written testimony.
Risks definitely remain for our firm, and we have some time
to go before the technology is proven at the scale that we
would like, but there is one thing that is clear. Without the
SBIR program, we may not have even been able to take these
risks in the first place. As a result, I venture to say that
the U.S. would be further behind in a global race to
commercialize one particular energy and water technology.
Our story is just one example out of thousands of how the
SBIR program can help an early stage company. However, as I
mentioned at the beginning and as I am sure the other panelists
will mention, we do see some room for improvement.
First and most importantly, uncertainty about the future of
the program makes it really difficult for small businesses to
plan and attract outside investment. We need stability.
Second, the time scale for agency responses is just way too
slow.
Third, all agencies should minimize bureaucracy, and I
would suggest making immediate use of information technology to
reduce paperwork. I am pleased that the reauthorization bill
addresses many of these needs.
Finally, on the VC question, I must admit that I am a
little bit concerned about opening the program to majority-
owned VC firms. Recent statistics suggest that VC firms are
beginning to scale back on seed stage investment, creating a
gap between scientific discoveries and company formation. In
this context, I do not believe that the government achieves its
objectives by decreasing the risk of a downstream VC
investment. To have the most impact, it should invest in high-
risk, high-impact ideas where the VC firms have failed to
invest.
This said, the VC community, of course, plays a really
vital role in our nation's innovation ecosystem and the actual
impact of opening the program is not yet known. I believe the
25 percent rule is a good compromise which I would support in
the name of moving the bill forward.
There is much more to say, of course, but I would like to
leave you with one thought. If there is one thing the
government can do to help our economy, it is lowering the cost
of commercializing new ideas and helping to foster an
atmosphere of product-focused risk taking. Any act involving
small business should, in my opinion, have this as the broader
goal, as it will be the key to competing in the global
marketplace in the 21st century for both companies and
countries.
Thanks again for inviting me to contribute to this
important hearing. I look forward to answering your questions.
[The prepared statement of Dr. Silver follows:]
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Chair Landrieu. Thank you, Dr. Silver. That was excellent
testimony.
I would like to recognize Senator Shaheen because she also
is going back and forth between committees and wanted to say a
word, and then we will get right to you, Mr. Hernandez.
OPENING STATEMENT OF HON. JEANNE SHAHEEN, A U.S. SENATOR FROM
NEW HAMPSHIRE
Senator Shaheen. Thank you very much, Chair Landrieu and
Ranking Member Snowe, and thank you for your leadership and all
of the work on this legislation.
I really wanted to say a few words in support of SBIR and
STTR because it has been so important to New Hampshire
businesses. As you point out, like Senator Brown and Senator
Ayotte, we are all trying to be at Armed Services while we are
here. I spent my time in New Hampshire at the end of January
visiting companies that were benefitting from this program, and
what I heard were the kinds of success stories that Dr. Silver
and Dr. Jacobs are talking about in your firms, that it was
because of those early investments through the SBIR program
that they have been able to develop new product lines, grow the
companies, and add jobs.
Of course, I heard the big concern was about making the
program long-term enough so that they could count on it, so I
am sure every panelist is going to speak to that issue, but I
think we have a winner here. It is important for us to get this
reauthorized and let companies know that it is going to be
there for the long term.
Again, I very much appreciate your leadership, Chair
Landrieu and Ranking Member Snowe. Hopefully, we can get this
through very quickly.
Chair Landrieu. Thank you, Senator.
Senator Ayotte.
OPENING STATEMENT OF HON. KELLY AYOTTE, A U.S. SENATOR FROM NEW
HAMPSHIRE
Senator Ayotte. Thank you very much, Chairwoman Landrieu
and Ranking Member Snowe. I also want to join my colleague from
New Hampshire. I think this really demonstrates what an
important bipartisan issue this is for small businesses in this
country, and particularly in our State of New Hampshire.
I came to Washington knowing that hard working American
small business owners create the sustainable jobs that we need
in this country. In fact, I come from a small business family,
and so I think it is so critical that this is really the first
hearing we have had and it shows the commitment of our
leadership that this is very critical that we reauthorize this
program.
I also look forward to working with my colleagues on the
Small Business Committee towards not only reauthorizing SBIR,
but also to look to reduce burdensome regulations that make it
very difficult often--that come from Washington--for our
businesses to succeed. So I hope that that is an issue that we
will also address in addition to reauthorizing this important
program.
Thank you so much for allowing me to make a statement,
because we are going back and forth here.
Chair Landrieu. Thank you, and please feel free to slip out
as we move forward.
As we stated in our organizational meeting, looking at
regulations and how it dampens the opportunities for small
business is another priority of this committee, so you can rest
assured that we will be on that as soon as we can get this
program reauthorized, which is our first priority.
Mr. Hernandez.
STATEMENT OF JOE HERNANDEZ, CHIEF EXECUTIVE OFFICER, SIGNAL
GENETICS, ON BEHALF OF THE BIOTECHNOLOGY INDUSTRY ORGANIZATION
Mr. Hernandez. Good morning, Chairman Landrieu and Ranking
Member Snowe. I appreciate the invitation this morning to share
a little bit of our story with all of you.
I am Joe Hernandez. I am Chief Executive Officer of Signal
Genetics. I also am the Executive Board Member of the Maryland
High Tech Council and reviewer for the National Science
Foundation for the Engineering Resource Center that they fund
on an annual basis.
I am privileged to be here today on behalf of the
Biotechnology Industry Organization's more than 1,200
companies, academic institutions, state biotechnology centers,
and related organizations in all 50 states. We are involved in
the effort of developing and further advancing the technology
in health care, agricultural, environmental, and industrial
biotechnology.
In my career, I have had the privilege of being involved in
some exciting cutting-edge technologies. I am a lot older than
I look, I promise. I was involved early on in my career in
Silicon Valley with the DNA microarray, which is technology
that has revolutionized the way we look at genomics and
genetics. I also was involved with a Maryland company by the
name of Digene that commercialized the first molecular test for
human papilloma virus, the causative agent of cervical cancer.
In my more recent career, I have founded a number of
companies and have had the pleasure of licensing technologies
from universities, raising venture capital, applying to SBIRs,
and commercializing products, all of which have created
hundreds of jobs in the companies I have been involved with.
I currently run a company that is focused in the area of
personalized medicine for multiple myeloma. This new revolution
in science will allow for individuals to get better therapeutic
treatments as we know their genetics and the makeup of their
genetics and how they ultimately respond to therapy. The
advantages are better outcomes for the patients, but also, more
importantly, better economics for our health care system.
It is with this background of experiences that I offer my
comments today. The SBIR program, as has been mentioned here
before, has played really a critical role in bringing amazing
innovations to the American people and created great
enterprises and employed a number of people. Unfortunately, the
effectiveness of this program is really threatened if not
modernized to address the current reality of the marketplace.
Congress created this program, as you know, in the early
1980s to help companies overcome the valley of death. The
realities of the market and the economy is that this valley has
become deeper, longer, and now we call it a canyon of death. It
is really a very brutal place.
We need to support this high-risk, high-reward research. We
want to take advantage of the basic research investments that
we have made as a society in places like the NIH and academia.
It is important that we leverage those investments.
It has an enormous benefit to patients and society at
large, and I would argue that if you look at some of the great
innovations, at least in biotechnology, a lot of them had this
genesis within the SBIR program.
For 20 years, the small domestic biotech companies have
competed for the SBIR programs, but in 2003, the Small Business
Office of Hearings and Appeals ruled that a company did not
meet the size standard because multiple venture capitalists
owned more than 50 percent of the company. The reality is this
case ignores the reality of these marketplaces. In the
biotechnology industry, it takes us eight to 12 years to
develop a product. It takes us $800 million to $1.2 billion.
Those are real numbers. Obviously, that cannot be done with
SBIR dollars alone. It requires the involvement of outside
investors in the venture community.
The disturbing trends documented since the majority of VC-
backed companies were excluded are actually quite alarming. The
NIH notes that there has been a 40 percent decline in
applications between 2004 and 2008. In 2009, there was the
lowest number of small business participants in the SBIR
program in a decade.
The impact of the recession and the financial crisis in the
biotech industry has been enormous. According to the National
Venture Capital Association, for these last four consecutive
years, the VC funds in the U.S. are declining. There is less
investment and less risk taking in the venture community at
this point.
A Thomson Reuters study found the crisis caused 80 percent
of biotech companies' investors to change their strategy. The
number of public biotechs has fallen by 25 percent between 2008
and----
Chair Landrieu. You have 30 seconds, please.
Mr. Hernandez. Thank you. The SBIR authorization must be
reestablished, the eligibility for small VC-backed companies.
It is imperative that we do that. And the award should provide
to companies that provide the best science in their
development.
The SBIR reauthorization must clarify the SBA affiliation
rules so that small companies can reasonably ascertain if they
are eligible for the program.
Lastly, BIO supports the SBIR authorization compromise
reached at the end of Congress. We support the Senate passing
this legislation. The bill improves access to SBIR at NIH, DOD,
NSF, in particular. The bill clarifies SBIR affiliation rules
in a way that gives peace of mind to small companies. We hope
an SBIR authorization bill will be signed into law this year.
Thank you for your time.
[The prepared statement of Mr. Hernandez follows:]
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Chair Landrieu. Thank you, and Dr. Silver, you have
expressed one view on this. Mr. Hernandez expressed another.
But the good news is there has been a compromise between both
of you on it and we appreciate it, because this has been one of
the issues that has held up this reauthorization. We really
appreciate everybody leaning forward on the venture capital
component of this.
Mr. Glover.
STATEMENT OF JERE GLOVER, EXECUTIVE DIRECTOR, SMALL BUSINESS
TECHNOLOGY COUNCIL
Mr. Glover. Thank you, Chairwoman. It is an honor and a
privilege to be here. I first testified before this committee
over 30 years ago, and this committee has been a leader in
small business and innovation during this entire period. There
are a lot of pieces of legislation that had this committee not
been in the forefront would never have happened--equal access
to justice, the Regulatory Flexibility Act, and, of course, the
SBIR legislation. You have got a proud tradition and your new
members should welcome and honor that tradition. You have
always had magnificent staffs, bipartisan staffs, and worked
together, and I want to commend both of you on that.
Senator Snowe, you are one of the few people who have been
fighting this fight longer than I have, and your leadership and
support when you were a member of the House of Representatives
and cosponsoring that was a courageous step then and you have
remained courageous in your defense of small business.
And we could not ask for a better Chairwoman than we have
right now. I want to thank both of you for that. It is an honor
to be here.
First and foremost, reauthorize this program. Ten CRs is
enough. We really need stability in the program. It is
absolutely critical. Permanent would be better, but we will
take as long as we can get. The more stability, the less
uncertainty, the better it is for everyone. It really is
working, and I do not think you should make major changes to
this legislation.
The caps are important to prevent very large awards from
crowding out other companies, other technologies, other
opportunities, and I think that the bill has struck a good
compromise in that regard. Without an authorization increase,
it will reduce the number of awards given by 25 percent, and
that is simply not acceptable for a program that is this good.
One of the questions that is always asked is do you need an
allocation, and the answer to that was answered back in the
1982 hearings in which Congress basically said that others have
the inside track--universities, large businesses. Without some
direction from Congress, we are going to continue to see small
business crowded out of where they can do the very best.
Everyone knows they are the most efficient in innovation and
research. We have seen a change in where scientists and
engineers work. Thirty-eight percent now work for small
business. We have seen a clear change in where key innovations
come from, to now 25 percent come from small business. Large
firms have virtually gotten out of the innovation business, and
that is very clear from the study that has gone out there.
We are now faced with small businesses in a perfect storm
of capital and credit shortages. As the Office of Advocacy's
recent studies on bank lending show, we are seeing a tremendous
shortage in bank lending for small business. We are seeing a
shortage in venture capital, especially early in seed stage.
Angel funding is down. And you do not even have equity in your
homes to go out and borrow money to help grow your innovation
and technology. So this is really the only steady, constant
source of funding for small business, new ideas, new
technology.
We are in an international competitive situation where
knowledge developed in America is immediately transmitted
around the world, and we are seeing jobs from our knowledge
taken overseas. We need to make sure those stay, and the best
way to do that is through small business.
Twice before, we have seen the President and Congress look
at the situation where we were coming out of severe recessions
and decided that the SBIR program was important. President
Reagan in the early Congress in 1982 decided that this was an
important thing to do to help create jobs, to help grow
innovation and technology. Again in 1992, Congress doubled the
SBIR program, with the support of President Bush.
So we have seen recognition in the past, when you were in a
severe economic time, it was time to call on small business
innovation. I would urge you to do that now.
Now, I have some questions for both the Congress and the
Obama Administration. Why is small business still under five
percent of research and funding expenditures by the Federal
Government? They do 25 percent of the innovations. They do more
patents. The SBIR companies alone do more patents than all the
universities. They do 38 percent of all patents in America. Why
is there no Phase 3 program in any agency except for DOE? DOE's
accelerator program is a courageous, bold step forward. Why is
it that there is not such a program at all the other agencies?
They could voluntarily do that, and quite frankly, from the
Obama Administration, why are they not supporting a significant
increase in this program?
I think that when we look at this, we see that it is a
great program. It has done what it was intended to do. We
support the compromise legislation.
I will say one point on a comment that Mr. Hernandez said.
He mentioned the 2009 numbers were down at NIH. I would be
happy to submit to the committee the 2010 numbers. They are up
dramatically. It is the second highest in ten years in terms of
SBIR proposals being submitted. That is just a little outdated.
It is a little cyclical over the years. We have said that. But
now, it is back up to the second highest number in the last
decade.
Thank you very much.
[The prepared statement of Mr. Glover follows:]
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Chair Landrieu. Two-thousand-and-nine was a tough year for
everybody.
Mr. Glover. It was a very tough year for everybody. Two-
thousand-and-ten, you saw----
Chair Landrieu. A better year.
Mr. Glover [continuing]. Applications went up dramatically.
Chair Landrieu. Thank you. I do have a couple of questions,
and let me start with, actually, Mr. Glover. I agree with you.
When my staff brought this reauthorization to me and said we
were only basically allocating 2.5 percent, and, of course, our
bill takes that up to 3.5 percent, but over ten years. That was
my same comment. Why are we only doing 3.5 percent for this
small business set-aside, not set-aside but allocation, in this
bill when there is a general understanding, and I think
verified by the testimony this morning, that in terms of the
number of patents, the innovation is all happening at the small
business level. The backing out of large corporations from
their own in-house research because they have figured out what
we should have figured out--you can buy better technology for
cheaper on the street, if you will, or from entrepreneurs out
there who do not have the constraints of large businesses, than
sometimes developing your own.
So I am doing this--only increasing the allocation to
3.5%--in the spirit of compromise, but I am going to mention to
the President personally that I think that the allocation
should be higher. Because of the compromises, and where it is,
I do not want to jeopardize our opportunity to get this moving
forward. But I am going to be pursuing that.
My question, Dr. Wessner, is to you. Although we have come
to a great compromise here with many different viewpoints for
this reauthorization, and I am very, very pleased and I thank
Senator Snowe for her help in negotiating much of this with me,
but we are still getting some push-back from universities that
basically see small business as a threat. They say to me,
Senator, we are the ones that do all the research. We do not
think small business should be taking more federal research and
developmental funds, even though this is a very small portion.
And in my experience, I have been trying to explain to
them, and this comes from Roy Keller who runs our technology
transfer in Louisiana, he says between 50 to 60 percent of all
Louisiana's SBIR have university involvement, and we are not
one of the higher states. We are more modestly engaged in the
program. I would like us to be more, and I intend to see that
happen. But he says, we work with the universities and the
small businesses in our state. About 50 to 60 percent of our
proposals have some type of university connection. So I am
confused about why some universities see this as universities
versus small business as opposed to partnerships, which I think
are the most important.
So my question is, from your experience, how do you see the
connection between small business and universities, and in your
own experience, do you not find that there is some real common
ground here?
Dr. Wessner. The short answer, ma'am, is yes. There is
common ground. I think we have to remember that old adage, what
you see depends on where you sit. When you ask the head of, or
the vice provost, for research in a major university, he will
explain that SBIR takes his money from his programs. But then
walk down the hall to the vice provost for commercialization,
and he will explain to you that SBIR is one of the most
valuable tools we have to convert our research into products
for the marketplace.
I think the universities are misguided in opposing this. I
have often told them, sometimes in heated discussions, because
we are from the Academy of Sciences and we do favor higher
research budgets for universities. In fact, let me repeat that.
The best way to calm some of this is to actually push our
research budgets up. That has a double beneficial effect for
this program, first, because you increase the amounts
available, but also it provides the space for everyone to
participate.
So the universities are a little bit schizophrenic. On the
one hand, they value it for the commercialization. On the other
hand, they obviously want more funds for their research.
What I would suggest you point out to them, what is the
most compelling story to a Senator or to a Congressman, that
there is a brand new publication in a peer-reviewed journal or
that there are 25 people working in a new company called
Qualcomm in their district? I think that latter story is the
most effective. It shows how we convert research into jobs and
into growth and into technological capacity and, indeed, into
national security.
Chair Landrieu. My second question is, there was some
concern, I think that we have tried to address it in our
reauthorization, but some that looked at this program, and it
has been alluded to in some of the testimony, there was a
practice some people called mill riding, which is that some
companies or some start-ups were getting grant after grant
after grant and not ever reaching commercialization. However, I
thought what I heard from Dr. Silver was that his enterprise
has received multiple grants from a variety of different
Federal agencies. He has found it to be very beneficial.
So how do we ensure accountability to the taxpayer by
allowing these innovators to be exactly that--innovative,
searching, getting different grants from different Federal
agencies--but making sure that we are giving value to the
taxpayer. At some point, that effort is either shut down
because it is not going to be successful or encouraged to be
another Qualcomm?
Dr. Wessner. We have an article I would be happy to submit,
both from the text of our reports--it talks about the myth of
the mills. Basically, this is an urban myth. There are a very
limited number of high-volume multiple awardees. Keep in mind,
as a program goes past 25 years, it should not be a real
surprise that there are more and more companies with more and
more awards.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
When MIT gets a large number of awards, this is good, just,
and right, and indeed, it probably is. When Lockheed Martin
gets lots of major contracts, this is good, just, and right.
When a small company gets a number of $100,000 awards----
Chair Landrieu. There is something wrong.
Dr. Wessner [continuing]. There is something wrong, and I
very much am in tune with Jere Glover on this point. I think it
is just a question of bias. But the facts are, there are not.
Many of them, they graduate, they are acquired, and by the way,
when you have a problem that the Hubble Telescope is not
working, actually, you want to go to Creare and ask them if
they can figure that out for you, given the capacity they have
built up by these multiple awards, and they do that job.
Some of them grow. Some of them are effective contract
research organizations. But the question you have to ask the
critics is, compared to what? Where else is the government
going to get the benefits of the innovation that small
companies bring? Where else are we going to have small
companies that work so closely with universities, often are
directly from the university working with the graduate
students? This is, quite literally, one of the great strengths
of the American system, our ability to pull from the public
sector into the private sector and solve social problems, solve
security problems, and help our companies grow.
It is a myth, Madam Chairman, that the mills are a problem.
Chair Landrieu. Thank you.
Dr. Jacobs, did you want to add something, and then I am
going to turn it over to the Ranking Member for her questions.
Dr. Jacobs. I would like to just note that Qualcomm, back
in the mid-1980s, did receive several Phase 1 and then several
went on to Phase 2. So we did have a number of different SBIR
awards. Some did not lead to ongoing job creation and new
technology, but some did and had a major impact. And so taking
that risk, allowing it to happen, not officially constraining
the number of awards being given to a given company, I think,
is beneficial.
Chair Landrieu. I might add that this is one of our
tremendous success stories. Qualcomm, I understand, paid more
than $1 billion in taxes in 2010 alone. That completely funds
the SBA for a whole year, the entire SBA for the country. So,
Senator, all we need is one big success in this program, and it
returns all the money we potentially could have lost.
Senator Snowe.
Senator Snowe. Well, I am sure Dr. Jacobs would agree with
that.
[Laughter.]
You have unanimously, I think, given strong confirmation
and affirmation of why these programs are irrefutably
successful and have grown over the years and have contributed
so much to our nation's economy. I wish all of our colleagues
could hear your testimony here today because it is so important
in making distinctions from one program to another. Clearly,
these are distinctions that everyone would embrace.
Irrespective of what side of the political aisle you are on or
what your views are about Federal spending, these programs
work, as you said. And I certainly want to make sure that we
impart that to our colleagues, but I think that the data that
you have given here today and the evidence is clearly
substantial and we will have to make sure we impart that to our
Senate colleagues when we are debating this legislation.
There are several issues that are facing us as a nation.
One, of course, the paramount issue is job creation, and
unfortunately, we are at a point where it is just simply
stagnating for all practical purposes. We only created a net
70,000 jobs between June of 2009 and December 2010. So when I
look at, for example, the SBIR program, making connections with
these programs with job creation, one of the startling figures
is that we know that small businesses create about two-thirds
of all the net new jobs in America, but 90 percent of that job
growth comes from four to five percent of the firms, and that
is what SBIR, for example, really does target. It is really
targeted towards those types of companies that are willing to
take the next step in research and innovation.
Is there any way for us to estimate what you think might be
the amount of job creation from these programs over the next
eight years? Mr. Glover, could you?
Mr. Glover. One of the sad things about data analysis is we
always look at the last issues. We were concerned about
commercialization so we tracked very carefully
commercialization on the SBIR program. Roughly 50 percent of
all of the technologies coming through Phase 2 get
commercialized. But nobody thought about jobs, so we do not
have clear records. We did survey the accelerator program,
DOE's participants, and found that they were going to increase
jobs dramatically. Now, that is a prospective study. We are
going to go back and do that in a year or two.
When you innovate and you expand and you have sales and
commercialization, you have job creation, but we do not have
good, clear documentation of that and that is something we
ought to be capturing.
Senator Snowe. Dr. Wessner and Dr. Jacobs, as well.
Dr. Jacobs. Yes. One of the things I would like to point
out is that often you are constrained on how fast you can add
jobs because a number of the people are not properly trained. I
think that the emphasis also on improving our educational
system and allowing more--and encouraging more students to go
into the subjects, in particular engineering technology,
science, is very critical. And so I know during our early
years, we were constrained because of finances and also because
of ability to attract new people.
Senator Snowe. Dr. Wessner.
Dr. Wessner. The program does create jobs and our research
supports that. I think your initial emphasis on the role of
small companies, per se, there are many factors that come to
play. If you have people with enormous competence like the
gentleman to my right here, sometimes the SBIR awards are a
surrogate for effective management because it is that
management, it is that conception of the technology, it is the
research investments we have made. It is the whole innovation
ecosystem which deeply involves the research and the training
function.
So I find it a little hard at times to say, well, you see,
they got this award so that explains why Qualcomm has 17,000
jobs. There are some, needless to say, some other factors at
play. But do they support companies at a critical phase and do
those companies add jobs? Yes.
Senator Snowe. Yes, Dr. Silver and Mr. Hernandez.
Dr. Silver. I just anecdotally want to make a quick point,
is that dollar for dollar, I would say that the SBIR program
likely produces, and the others might have better statistics,
but likely produces far more jobs than the average program. If
I take our company as an example, a lot of us are really
passionate about what we are doing. We are not necessarily
spending all the money on market-rate salaries, let us put it
that way. We are spending the money on what it is going to take
to get the products out, and I think that is going to be the
case across the board with SBIR recipients.
So if I would look at a way to get the biggest bang for the
buck, it would be putting the money towards small businesses if
you are looking for job creation.
Senator Snowe. Thank you.
Mr. Hernandez.
Mr. Hernandez. I would actually echo those sentiments in
the fact that when, in our experience, the way we have
approached the SBIR program is that when we put a grant
together, we usually put a new head count on that grant. In
other words, we will allocate a percentage of salary to a
potential new hire. These are usually projects that we do not
currently--are invested in the company. These are usually
higher-risk projects. So we would like to bring in new head
count to address those projects. If they move beyond the de-
risking stage, then we invest additional capital, either from
our venture pile of capital or from other additional sources.
So there is no statistics, but I would argue that in my
experience, at least in the biotech industry, this is the way
it is done.
So I would argue that if you had a one-for-one new job
created opportunity with these programs, I think would be
immense success. That has been my experience.
I want to just mention a little bit, the comment earlier
about mill riding and--it is really interesting, because when
we first started the company, we looked under every rock for
dollars, and oftentimes it required us to write multiple SBIR
grants, many of which were not awarded for I do not know what
reasons, but they were not awarded. So the notion that multiple
grants need to be written is really part of the process for us,
for new company creation and new technology risk taking.
The reality is that the portfolio theory applies here. You
are going to write ten grants. You perhaps are going to get a
couple of those, if you are lucky. Some of those products will
die on the--they will just die on the vine. That is just the
way the business is. But it is that one success that moves
beyond that early stage that allows us to then convince the
venture capitalists that there is a real merit here to what we
are doing, and that is an important one.
So I would not be biased by the notion that companies apply
to multiple grants. I do not think that is viable. The market
corrects this. If the company is not viable, the company will
not survive. So I would not be biased by that position. Thanks.
Senator Snowe. Thank you.
Chair Landrieu. Senator Cardin.
Senator Cardin. Thank you, Madam Chair, and I thank all of
our witnesses. We are very interested in this area for many
reasons. The work that you do makes us safer, healthier, more
economically competitive, but it is all about jobs, also,
creating jobs, and I could not agree with you more. I think one
of the reasons why Maryland has a lower unemployment rate than
the rest of the nation is that we are heavily endowed in
technology firms. It is not just the triangle between
Baltimore, Washington, and Frederick, but in the Western part
of our State, the Northern part, Southern part, Eastern part,
we are finding technology firms that are developing.
But I just really want to underscore the point that our
Chairman made, and I think the accomplishment we got last year
in getting the SBIR bill through the Senate, we were able to
find the sweet spot between the different interest groups that
have been very heavily engaged on this bill. And if you do not
think the universities and large technology firms have some
sway here, take a look at the Recovery Act and see the
exemption that was put in for the SBIR programs. That was a
major disappointment and it came out--we are still wondering to
this day how that came about.
But I think the point that you mentioned, Mr. Wessner,
about the universities, I am puzzled as to why. I mean, I look
at our two great academic centers, the University of Maryland
and Johns Hopkins. Both are expanding in Montgomery County
because of the technology firms that are there, and they are
the small technology firms. Mr. Hernandez, you pointed out that
you not only have a good relationship, I think you license
technology from the universities in order to get your work
done. So that collaborative effort is clearly feeding on each
other. The university structure is stronger because of the
innovative small companies that are willing to take risks.
And I am going to get around to a question to you, Mr.
Hernandez, because at the end you said you supported the
compromise that we reached last year and I want to make sure
you still feel that way, because we reached a compromise that
truly was a compromise. It was not as much as I think some of
the smaller companies would have liked to have seen, but it at
least put you in the ballgame. You were able to use venture
capital as part of your ownership.
I was just impressed by your typical example of a small
technology firm of less than 50 employees, has no product on
the market and needs to deal in hundreds of millions of
dollars, that needs to find angel investors and venture
capitalists if they are going to be able to have any chance of
succeeding and obviously need multiple sources of financing and
the SBIR can be critically important to the success of that
venture. Are you still satisfied with the compromise we reached
last year in the Senate?
Mr. Hernandez. I am assuming that question is directed at
myself.
Senator Cardin. Yes. Yes.
Mr. Hernandez. Okay.
Senator Cardin. I always pick on Marylanders.
[Laughter.]
Mr. Hernandez. We obviously have a great appreciation for
the State of Maryland. They have been utterly supportive to the
biotech industry. We are very, very honored to have amazing
relationships with Johns Hopkins and the University of
Maryland. I actually serve as Entrepreneur in Residence for the
University of Maryland-College Park and that entity is one of
the most supportive entities I have dealt with in my career.
MIT has been another entity where I spun out a company out of
and actually housed it in College Park. They have a great
incubator there.
So this fight that exists in this--I do not experience it.
I do not see that. I think it is really a collaborative effort.
And maybe that is a byproduct of where we are located.
You know, with regards to the compromise, you know, we
support the Senate passing this bill. The work that you guys do
is magic to us. We let you guys do that work. We really--we
just want to build, done, right. I think it is imperative that
we do that. We will let you guys do the work that you do.
You know, this other comment about the venture community is
really an important one that we have to understand here. The
venture community has been on the sidelines for a couple of
years. The market has really shook them up quite a bit. It is
imperative that we bring them back to the table, if you would.
One way to do that, in my humble opinion, is to make sure
that you provide technologies that have been somewhat de-
risked, and here is what I mean by that. It turns out that in a
due diligence process of a company, when you are an investor,
and I have been an investor in companies, as well, oftentimes,
if a company has an SBIR, we view that as a merit. It is an
important due diligence process that exists.
So creating and allowing companies to compete in the SBIR
program in collaboration with universities brings capital to
the table, and I think that that is an important relationship
that needs to be highlighted further, and maybe this is not the
right forum in terms of an SBIR, but the corporate academic
relationship is critical to success. It has been critical to
successes of our companies. So it is really imperative that we
get a bill done.
Senator Cardin. We feel the same way. Thank you.
Thank you, Madam Chairman.
Chair Landrieu. Thank you.
Dr. Wessner, let me ask you this, since you have done most
of the studies on how the program operates. It occurs to me
that for the program to be as effective as it could possibly
be, that the expertise and quality at each agency and at the
SBA to run a quality program, whether it is within NASA or NIH.
Comment to us, and I am sure it is included in your testimony,
but for the record, just to reiterate, what is your assessment
of how the individual agencies or departments actually run
their programs and identify some of the quality grants that
come in. I realize that you have all testified that the time is
too long in terms of decision making, so we are trying to
shorten that up. But the overall leadership, I guess I am
asking you, of the program currently, how would you define
that, Doctor?
Dr. Wessner. How well are the people who are dealing with
it every day doing?
Chair Landrieu. Yes, doing it and identifying, you know----
Dr. Wessner. Well, I----
Chair Landrieu [continuing]. And how is the Federal
Government doing at actually hiring the right people in those
positions?
Dr. Wessner. Well, I think the administration deserves a
lot of credit for a revitalized SBA. Karen Mills and the
Associate Director, Sean Greene, have brought intelligent
policy attention to this area and I think they have been a
great credit to the program.
I honestly think, in general, that the quality of the
people involved with the SBIR program is among the highest in
the government. They have some really good people. Now, that
does not mean that the whole team is perfect, but we are
talking about human endeavor here. But overall, I would give
them very high marks.
I think, if you would appreciate the humor, I think they do
very well and I think they need to do better, and the way they
need to do better is by having less--more incentives. One of my
colleagues from the Defense Department remarked to me the other
day that there are only--I think there are only two people who
have SBIR in their performance evaluation in the Department of
the Army. The question is, who is actually responsible for
making the program work?
I would urge, particularly those from your membership who
are going to the Armed Services Committee, to vigorously remind
the leadership of the importance and the value that Congress
attaches to the program.
So are we running the program well? Yes. We have 37 pages
of recommendations of how to run it better, many of which
appear in this bill and many of which have already been adopted
by the agencies. And I would stress, that consultative process
of having an evaluation in process has proven very helpful to
the innovation and the management of the program. But cutting
the paperwork, reducing the cycle times is probably the most
valuable thing--as valuable as increasing the overall size of
the program. I would stress that.
Chair Landrieu. I am going to ask all of you this and then
I will be finished with my questions and turn it back to
Senator Snowe. We have a vote at 11:50, I believe. But as I
look at the awards across the country, there are obviously
clusters of awards, most notably in California, Massachusetts,
and several other States. Unfortunately, Louisiana is not in
one of those clusters. And I realize that this is highly
competitive and we want there to be the flexibility for the
money to follow the best science and best innovation. But some
of you have alluded in your testimony to sort of the lack of
awareness or that there are either areas of the country or
enterprises in the country that are not as aware as others
about this program.
So my question, and we could start with you Jere and go
this way across the panel, if there were one or two--first of
all, do you think that this program is well understood and well
known uniformly throughout the country? If not, how could we do
a better job, either this committee, Congress, or
organizations, states, local governments, business
organizations, telling people about it? So I am sort of
searching for best practices, and you can all take just maybe
40 seconds to say what you would suggest to us.
Mr. Glover. There is clear record that where money is
spent, matching with the States to get outreach and education,
the number of awards in States goes up. There is a clear
correlation between that, and we have gone back and looked at
it. When we dropped the FAST and rural outreach, we have seen
the have-not States, as I refer to them, numbers decline. So
that is number one.
Number two, there is going to be some administrative money.
I certainly expect and hope the agencies will use part of that
to do outreach, training, and working around the have-not
States, including national conferences in have-not States that
cannot afford to run a whole conference, to make sure that gets
done.
And the number one priority for the agencies should be, as
it used to be, to get outreach into those have-not States and
make sure. There is just as bright, just as competent, just as
good technology in the rest of the country as there is in
California and Massachusetts. The fact that there is not an
infrastructure does not mean that the people are not as bright
and the technology is not as bright. So I would encourage that
and make sure that some of that administrative money gets spent
to do outreach and training and education.
Chair Landrieu. Thank you, Jere.
Joe.
Mr. Hernandez. Yes. I do not know that it is an issue of
the lack of knowledge of the program. I really believe that it
is an issue of process and the challenge involved in putting
these applications together. The size of the awards is another,
I think, driver. It turns out oftentimes you spend more money
on consultants putting this thing together when you need
supporting documents than the award itself is worth it.
The other thing I think is really important and would
really increase the quality of applicants, and, I would argue,
the number of applicants, is really this issue of providing
access to the VC-backed companies. It is really an important
angle that I think needs to be addressed in whatever compromise
comes out of this. It is really imperative that we increase the
quality and the number of applicants.
But in terms of marketing the program, I think it is a
great program. The market knows about it. I would just
encourage that we need to make it a simpler, more inclusive
process.
Chair Landrieu. Dr. Silver.
Dr. Silver. Thank you. Yes, from my perspective, I can say
that I learned about the program because I was consulting for
another firm that received funding under the program, and I do
not know that I would have known about it otherwise. So that
suggests that at least there is sort of a feedback loop there
and things can start concentrating in certain areas.
I would say that one of the points that I want to make is
that with respect to innovation more generally, it really does
not happen just because of funding. It happens--Mr. Glover
pointed out the concept of an infrastructure. It happens
because there is an ecosystem of people that are interested in
starting new companies that hear about things, and what I would
urge is that the program think of a way or find a way to be
part of that broader ecosystem.
And some concrete specific examples are there are a lot of
business plan competitions that are starting around
universities. That is something that could be tapped into.
There are a number of other competitions that are nationwide.
We were able to win a nationwide competition out of MIT, but
there are some at Rice University in Texas. There are a number
of others.
So my point would be that think about the broader ecosystem
and get the program associated with universities or places
where there are going to be people that are excited about early
stage firms. I think it could really have a big impact.
Chair Landrieu. Dr. Jacobs.
Dr. Jacobs. Yes, I think you will find that a lot of these
clusters, or certainly a lot of the small businesses in the
high tech area, biotech area, start up around good research
universities, and so this issue of there being a separation
between the universities or a fight between the universities
and the SBA on these SBIRs, that should not be the case. It
seems to me that going in and working with the universities,
making sure that these days the students that are, in fact,
very interested in entrepreneurial futures, that they are aware
of this program when they do go out.
As far as being able to spread it further, again, I think
that it is important to provide more funding into the
universities because that just, again, has a very large
multiple.
And so where there is a good university, I think you will
find a number of companies. It is important to let those
companies know that these programs exist. The other is to
spread it further, I think you just have to get better
education.
Chair Landrieu. Dr. Wessner.
Dr. Wessner. Could I just concur with that. It is very
important to train the cohorts if we do not do the university
investment. But once you are doing that, outreach to women and
minorities is really important and we are trying to develop
some work on that in the Academies right now.
Your FAST program needs to be not only in the law, but it
needs to be funded. I mean, a few million dollars just does not
do it, and I would urge that you make that a substantial
program. We have not been able to research that, but everyone
we talk to disproportionately stressed how important that was.
So I think, and particularly for the disadvantaged States,
although I would remind you, Madam Chairman, that one of the
key variables is applying. So talking to the universities,
reaching out to them with prizes and with a culture--you might
want to explore, could you offer small funding to the
universities to advocate for the program? One of the key things
is changing the culture inside the institution so that they
understand they can do this. It does not have to just be
football.
Chair Landrieu. Senator Snowe, anything?
Senator Snowe. Just one question. On flexibility, do you
think we have incorporated enough in here? I know, Dr. Wessner,
your report indicated that is one of the strengths of the
program, so do you think our legislation does enough in that
regard, to give the agencies flexibility in how they administer
it?
Dr. Wessner. Well, Senator, that is--it is important to
reauthorize the program, and this is good legislation and it
has got a good compromise. And if you can pass this bill, that
would be good.
Senator Snowe. Okay.
Dr. Wessner. Do we think that--I would urge, in general, to
both of you, Ranking Member and Chairwoman, that you need to
instruct the program managers, whether you are talking about
mills or whether you are talking about caps. I mean, I would
ask and challenge your committee. If the scientists at NIH
really think a cervical cancer product should have a large
award to do it now, does the committee in its wisdom really
believe that they are wrong and that you should tell them how
much they are allowed to give?
And could I point out that what happens when you do that?
Well, they will just give multiple awards. I mean, you know, it
squeezes out on the sides. You cannot--but the scientific
opportunity, we would argue, should dominate with a required
clear statement of what the justification is and with the SBA
checking up. What did you do? What happened? So making them
justify and making them evaluate, to our argument, is better
than fixed amounts.
Senator Snowe. Well, I suppose you could have a waiver in
some instances.
Dr. Wessner. If you can have an active waiver, then I would
withdraw the concern.
Senator Snowe. Yes.
Dr. Wessner. As long as it is in a----
Senator Snowe. No, because you are right. If there is an
instance where there is X-amount of money and there is a
rationale and data to document that X-amount of money could
make the difference in producing a result----
Dr. Wessner. But our report which addressed this did not
argue that they should just be able to give $3 or $4 million to
a company and just do it.
Senator Snowe. Right. Well, we ought to look at that. That
is an interesting point, actually. I understand what you are
saying. It is compelling.
Any other--Dr. Silver, I know you dealt with multiple
agencies for different departments, did you not, four or five?
Dr. Silver. Yes, I did.
Senator Snowe. Yes. So is there any one that does a better
job than the other, or am I putting you on the spot?
[Laughter.]
Dr. Silver. There are sponsors here.
Dr. Wessner. You are on the record here.
Senator Snowe. Okay.
[Laughter.]
Dr. Silver. No, I do want to say that one agency that we
have enjoyed working with a lot is the NSF, that they have
reduced paperwork enormously and they have got sort of
approaches to overhead that for a small business is very
useful, particularly having a safe rate for a small business,
those kinds of things.
Our goal is really to get products out as quickly as
possible. We do not want to be doing a lot of bureaucratic
work. And so I think that something in the legislation that
focuses on that would be very helpful for a lot of businesses.
Chair Landrieu. And can you repeat that? Do you mind if I
ask about they are sensitive to the overhead rate, go into a
little detail about that?
Dr. Silver. Sure. There is what is called a safe rate. I
believe for the NSF, it is 50 percent, below which--if you have
an overhead rate of that or below in your application, you are
okay. They are not going to go back and ask you for detailed
multi-year background of how you calculated that overhead rate.
And those kinds of approaches--in fact, that is a really good
deal, I would argue, for the government because our overhead
rate is probably higher than that, but we would rather just use
a safe rate. So----
Chair Landrieu. Oh. I see what you are saying.
Dr. Silver. That is just an example of particularly--and I
am speaking from the perspective of early stage innovation. I
would really urge a distinction between very early stage and
maybe a running company that has 400 people and it is selling
products and needs a little extra capital.
Chair Landrieu. Right, because in the front part, it is
mostly salaries, right? It is mostly going to be salaries for
the one or two, just, you know----
Dr. Silver. Yes. Yes.
Chair Landrieu [continuing]. Paying your light bills and
your food bills, not to cut into your time----
Dr. Silver. Exactly.
Chair Landrieu [continuing]. But until you can get
something going. That is a very good point.
Joe, do you want to add anything?
Mr. Hernandez. Yes, let me just--I mean, I think making the
process as efficient as possible is really the goal here. You
know--this is not BIO's official opinion, by the way. This is
Joe's opinion, and I am biased because I am a reviewer for NSF.
But I would argue that NSF has really created a really good
model to streamline the process, and I think, again, it is this
question of it is $100,000. Do you really want your people
spending all this energy and writing grants, getting
consultants to support your data, doing additional research?
When you really look at the grand scheme, if you do not get a
Phase 2 program, it is really--there is really an expensive
endeavor.
So to the extent that that process can be made shorter, to
the extent the process can be quicker in terms of providing
peer-reviewed objective feedback on the work, and that is a
challenge because these--oftentimes, when you do not get a
grant, the feedback that comes back sometimes is
counterintuitive and there are even dissenting opinions amongst
the opinions that you get back. So there has got to be a better
process, of course. But I would argue that making the size of
the award significant and making the process faster would
really be an important piece of it.
And again, coming back to this, you know, how do you
increase the quality of the applicants, you have got to let
venture-backed companies into the process. It is imperative.
That is how you are going to increase and create more value out
of the effort.
Chair Landrieu. Jere.
Mr. Glover. You mentioned agencies. I would point out, too,
Navy and Defense Department does a much better job of follow-on
and transmitting technology. I know the other departments are
working on that and trying, but Navy clearly is the model of
excellence, and DOE has done more in the past year than anybody
else. They created a Phase 3 accelerator program. They took
their Recovery Act money, put out a whole new solicitation, got
it out on the street, did it in record time, record efficiency.
I would point out those two agencies, to answer your question.
Senator Snowe. Jere, can I just ask you one question about
SBA. What do you think they could be doing to promote these
programs? Is there anything?
Mr. Glover. I think SBA has taken more leadership. It is
still not where it was years ago. There is a lot of role models
and leadership. They are making great strides. They are getting
back. But under Maury Swinton when he was head of the Office of
Innovation Technology, they basically did a lot of real
guidance and leadership and I think that is going to be
important, and we are seeing that happening now.
Senator Snowe. Okay, great. Thank you all. Oh, yes, Dr.
Jacobs? I am sorry.
Dr. Jacobs. On that point, there was another San Diego
company as well as Qualcomm that was inducted into the Hall of
Fame for the SBIR program and I think that, in fact, it was an
SBA Administrator that made us aware of the program at the
time. It was a very active Administrator, did make sure that we
all understood these programs existed. He watched out for
companies that were kind of in a start-up phase.
And I might mention one other thing. It sounds like there
has been some requirement creep over the years, because I
remember this being a very straightforward, very simple process
to get a proposal in and very quickly get an answer back and it
sounds like that has changed dramatically.
Senator Snowe. Okay. That is a good point, a very good
point and observation. Thank you.
Chair Landrieu. Jere, I want to ask you. As you know, we
have raised the limits from $100,000 to $150,000, and then
from, what is it, up to a million, from $750,000 to a million.
I understand that you all are concerned if we raise those award
amounts even higher because you want to make sure that this
SBIR funding gets spread to really small businesses and start
ups. But given the testimony here, how would you comment about
that--sometimes it takes more money to put an application for
$150,000 together than the $150,000 award?
Mr. Glover. I think we need to make sure the application
process is simple and clean and consistent across the agencies.
It should not cost more. But when you increase the size of the
awards, you crowd out other opportunities, other technologies,
and other people. To do that, you must do it very carefully.
This program was designed to meet the early market niche where
no money is available.
Venture capitalists do not look at technologies that are
basically being funded under the SBIR program. Once you get
through the program, they may look at it, but the first SBIR
you win or the first Phase 2 you win, no venture capitalist is
going to be looking at that technology. This is money that no
one else offers. And when Roland Tibbetts set this program up,
he was very specific that we needed to fill that early stage
niche, and that niche is worse and deeper now than it has ever
been. Venture capitalists have pulled out of the early and seed
stage business. Look at the numbers. They are way down. There
is nobody playing in this niche except SBIR. You raise the side
of awards, you crowd out other companies and opportunities and
you crowd out the have-not States.
Chair Landrieu. And what do you think? I'm pressing you a
little on this. What do you think about the waiver idea,
though, if it is very limited, targeted, but available?
Mr. Glover. It was in the law, and SBA gave NIH a blanket
waiver and you saw the award size shoot up. So only if it is
really careful and really monitored. I would limit it to one or
two awards per agency per year. Let the head of the agency pick
what is really important to him, what he thinks is best. Make
it a competition. Do not allow it just to be one, I am sorry,
bureaucrat at SBA who has a bad moment and grants a blanket
waiver and then you see ten years of increased awards and you
see the number of applicants go down because the chance of
winning went down.
Chair Landrieu. Dr. Silver.
Dr. Silver. A very quick point to make. I would agree, for
the most part. I would just make one point, is that there is a
difference between different kinds of technologies and what the
funding is going to get. And if you have got funding, $150,000
for a software project, you can get pretty far along. For a
biotech project, if you are a completely new company, you are
not going to even be able to start. So if there is concern of
crowding out with the blanket higher level, I would say look at
the different technologies, figure out what is actually needed
to prove feasibility for a given technology.
Chair Landrieu. Jere, what do you say about that?
Mr. Glover. I think you still come down to the situation
where the SBIR program is not going to be--it never intended to
fund the entire drug development process for a drug. Five, six
hundred million dollars necessary to get a drug approved. The
whole SBIR budget at NIH would not do one. So it just cannot do
it. We want to get as many technologies as far along as we can.
It is just that simple. We cannot simply pick a few winners.
The government is not real good at that.
Chair Landrieu. Okay.
Mr. Glover. We pick 100 winners, we will get a few really
successes.
Chair Landrieu. Dr. Wessner.
Dr. Wessner. Well, I was--initially, I wanted to agree. I
think the standard award size at $150,000 and $1 million makes
a lot of sense and it simply restores it closely to where it
was at the origin, discounting for 20 years of inflation. So
that is a good place to be.
But we would argue strongly for the flexibility that we
discussed earlier. I do not think--well, I do not think any of
us in this room can make those judgments. That is what program
managers and the selection committees are for. I do think they
should justify it if they make it harder. I think we should
allow, as we do, to make much smaller awards. The Department of
Agriculture and EPA make really small awards, and they are
comfortable doing that. That--remember my original testimony.
That is why this program works, is because we do not try and
tell them what to do. It is not a French program that is
centrally directed from this room. It works because it works
differently everywhere.
They should be held accountable. We do want to know what
they are doing and why, and they should be able to justify
that. But the decision should stay out there or I think we are
in trouble.
And I would also respectfully say, I do not think the
problem is as big as it has been painted sometimes. I mean, NIH
has made some larger awards. No one complains when the Navy is
adding SBIR funds and they are getting procurement funds to
actually deliver something to a warfighter. We do not want to
tie their hands on that. So I would ask them to report, ask
them to defend and justify it, but let them do what they think
they need to do.
Chair Landrieu. Well, this has been excellent. I am sorry I
have to bring this hearing to a close, but it really has been
an excellent discussion of one of the most exciting and
innovative programs of the Federal Government. As Chair of this
committee, I intend to do everything I can to push for its
passage, literally in the next few weeks on the Senate side,
and then get it over to the House and try to get it to the
President before summertime. That is our goal and we are going
to see what we can do to get it done.
Thank you very much. The record will stay open for two
weeks, as usual practice.
The hearing is adjourned.
[Whereupon, at 11:47 a.m., the committee was adjourned.]
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