[Senate Hearing 112-832]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-832

             REAUTHORIZATION OF THE SBIR AND STTR PROGRAMS

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

                                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

                              ----------                              
                   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

                              ----------                              

                           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

                              ----------                              


                      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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