[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


    COMMERCIALIZING ON INNOVATION: REAUTHORIZING THE SMALL BUSINESS 
      INNOVATION RESEARCH AND SMALL BUSINESS TECHNOLOGY TRANSFER PROGRAM

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             MARCH 2, 2016

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
                               

            Small Business Committee Document Number 114-047
              Available via the GPO Website: www.fdsys.gov
              
              
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
             Emily Murphy, Deputy Staff Director for Policy
            Jan Oliver, Deputy Staff Director for Operation
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Mr. John Williams, Director, Innovation and Technology, Office of 
  Investment and Innovation, United States Small Business 
  Administration, Washington, DC.................................     4
Barry Johnson, Ph.D., Division Director, Industrial Innovation & 
  Partnerships, National Science Foundation, Arlington, VA.......     6
Matthew Portnoy, Ph.D., Overall HHS SBIR/STTR Program Manager/NIH 
  Program Manager, National Institutes of Health, Bethesda, MD...     8
Mr. Robert Smith, Director, SBIR/STTR Programs, Office of Naval 
  Research, Arlington, VA........................................     9

                                APPENDIX

Prepared Statements:
    Mr. John Williams, Director, Innovation and Technology, 
      Office of Investment and Innovation, United States Small 
      Business Administration, Washington, DC....................    27
    Barry Johnson, Ph.D., Division Director, Industrial 
      Innovation & Partnerships, National Science Foundation, 
      Arlington, VA..............................................    31
    Matthew Portnoy, Ph.D., Overall HHS SBIR/STTR Program 
      Manager/NIH Program Manager, National Institutes of Health, 
      Bethesda, MD...............................................    34
    Mr. Robert Smith, Director, SBIR/STTR Programs, Office of 
      Naval Research, Arlington, VA..............................    40
Question and Answer for the Record:
    Question from Hon. Steve Chabot to Mr. John Williams and 
      Answer from Mr. John Williams..............................    43
Additional Material for the Record:
    None.

 
    COMMERCIALIZING ON INNOVATION: REAUTHORIZING THE SMALL BUSINESS 
        INNOVATION RESEARCH AND SMALL BUSINESS TRANSFER PROGRAMS

                              ----------                              


                        WEDNESDAY, MARCH 2, 2016

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:00 a.m., in Room 
2360, Rayburn House Office Building. Hon. Steve Chabot 
[chairman of the Committee] presiding.
    Present: Representatives Chabot, Luetkemeyer, Hanna, 
Gibson, Radewagen, Knight, Curbelo, Hardy, Kelly, Velazquez, 
Chu, Meng, Lawrence, and Moulton.
    Chairman CHABOT. Good morning. The Committee will come to 
order.
    I want to thank you all for being here today. We are 
holding the first of two hearings our Committee will conduct 
this month concerning the reauthorization of the Small Business 
Innovation Research and Small Business Technology Transfer 
programs, or SBIR and STTR. Innovation is the energy that 
drives our economy. Technological breakthroughs and the 
entrepreneurship it spurs build our economy by finding state-
of-the-art solutions to difficult problems and marketing those 
new products. This correlation is particularly important in the 
small business arena. Small businesses tend to be more nimble, 
responding to market changes more rapidly than their bigger 
counterparts, and they drive the innovation sector and make us 
more agile in the global economy. It is that recognition of 
small firms' ingenuity that led Congress to establish the SBIR 
program back in 1982 and the STTR program in 1992. These 
programs set aside a portion of Federal research dollars for 
small businesses. Spanning 11 participating agencies, such as 
the Department of Defense, National Institutes of Health, and 
the National Science Foundation, the development dollars set 
aside for small businesses are critical for both the small 
business companies that use the grants and the Federal agencies 
that seek innovation to the problems that they encounter.
    Whether it is a new software system for tracking contract 
payments, a new medical device to help with cancer treatment, 
or new piece of technology that saves lives on the battlefield, 
the SBIR and STTR programs have consistently delivered results 
across all agencies. In this era of globalization, making it 
easier for small businesses to develop and commercialize new 
innovative products is essential for America's competitiveness 
and national security. That is why programs like SBIR and STTR 
are so important.
    Small innovators have always been on the cutting edge of 
science and technology. These are the entrepreneurs who have 
the kind of mentality to take big risks in search of big 
rewards, but the next big thing does not just materialize. It 
happens with a lot of sweat equity and late nights. Ideas 
matter but executing those ideas is what is most important. 
That is where the SBIR and STTR programs come in. The very 
competitive and phased system of these programs allows for a 
relatively small initial Federal investment to help 
entrepreneurs cultivate a concept. Often being the first place 
prospective entrepreneurs go to find seed funding, the SBIR and 
STTR programs allow initial testing and further development of 
that idea. If it appears the idea has merit, the company can 
compete for a much larger award to develop that idea further 
and work towards making it a commercial success.
    These programs were last authorized in 2011. In order to 
give entrepreneurs stability and predictability, we are getting 
a jumpstart on reauthorizing them before next year's deadline. 
Today, we have a very distinguished panel of government 
witnesses who are intimately involved in their agency's SBIR 
and STTR programs. We look forward to hearing about your 
programs and your suggestions of how we can make these good 
programs better.
    Again, I want to thank all of you for being here and I 
would now like to yield to the ranking member, Ms. Velazquez, 
for her opening statement.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Since their establishment in 1983, the SBIR and STTR 
programs have helped launch tens of thousands of successful 
research projects. During this time, they have awarded nearly 
$40 billion, making them a critical source of funding for small 
innovative firms. As a result of these programs, breakthroughs 
have been made in a wide range of sectors, from agriculture to 
energy to healthcare. In turn, these discoveries have generated 
economic growth and the job opportunities that come with it.
    In 2011, Congress enacted a reauthorization of these 
programs. One of the primary outcomes of the legislation was a 
greater focus on commercialization. Such a focus is necessary 
if we are to ensure that the programs remain a catalyst for not 
just innovation but also the economic empowerment and job 
creation that are associated with these scientific advances.
    During today's hearing, I am especially interested in 
understanding how the reauthorizations' various 
commercialization initiatives have played out and if they are, 
in fact, resulting in more successful endeavors.
    In a similar context, the legislation required agencies to 
track those opportunities that continually win Phase I awards 
without progressing to Phase II. I look forward to reviewing 
this data.
    Among the most notable changes were increases in 
permissible award sizes. In theory, this should provide 
agencies with more flexibility to make larger awards to the 
most promising innovations. However, I am concerned as we have 
seen a decline in the overall number of awards. Understanding 
the tradeoffs here are important and we need to know what is 
preferred. Fewer, larger size awards or more awards of lower 
value.
    There are also two perpetual issues that continue to raise 
concerns. One is that the programs remain concentrated in just 
a few states. Altogether, the top 10 award states receive over 
half of the number of awards and half of the dollars. This 
results in programs that are largely serving just a handful of 
states while others receive very little benefit from it at all. 
This is a perennial issue that continues to warrant this 
committee's attention.
    Similarly, concerns exist that the participation of women-
owned and minority-owned firms has been declining. Just like 
with geography, when it comes to demographics, it is important 
that SBIR and STTR are serving all entrepreneurs, including 
women and minorities. This is especially important as reaching 
this group is the only stated objective of the program that is 
not currently being met.
    Finally, I know there is much discussion about the duration 
of the authorization period for these programs. In the past, 
Congress's inability to pass a bill created great stress on the 
agencies and among small businesses. I understand and recognize 
this legitimate concern; however, SBIR and STTR are statutory 
programs and rely on Congress to make changes. As a result, it 
is crucial to have regular legislative oversight of the 
programs. This means having an authorization period, such as 
the current sixth year, which permits Congress to implement 
updates that reflect the evolving nature of technology and the 
economy, while still giving participants certainty of all the 
programs.
    During today's hearing, I hope that we shed light on this 
issue so that we can begin to evaluate how the changes included 
in the 2011 reauthorization are performing. The reauthorization 
window is upon us, and it is critical that we know what is and 
is not working. We know the value that the SBIR and STTR 
programs have in fostering innovation. While they continue to 
do so, we must oversee these programs regularly. And for that 
reason, I thank all the witnesses for being here and the 
chairman for calling this hearing. I thank you, and I yield 
back the balance of my time.
    Chairman CHABOT. Thank you very much. And I would now like 
to explain briefly the timing system. We operate under the 5-
minute rule. I am sure you are familiar with it. It is kind of 
like a traffic light on your desk there. Green light means go. 
You can talk. You will get a yellow light warning there to let 
you know you have got about a minute to wrap up, and then the 
red light will come on and you are supposed to stop. Most 
people do but some people go on. If you would not mind wrapping 
up close to that we would appreciate it. We will give you a 
little leeway.
    I would now like to introduce our very distinguished panel 
here this morning. I will begin with our first witness, John 
Williams, who is the Director of Innovation and Technology for 
the Office of Investment and Innovation at the SBA. Mr. 
Williams's primary responsibility is to oversee Federal policy 
implementation and programmatic oversight of the Small Business 
Innovation Research (SBIR) and Small Business Technology 
Transfer (STTR) programs across all 11 participating agencies. 
Prior to joining the SBA in December of 2014, Mr. Williams 
served as the Director of the Navy SBIR and STTR programs. 
Through his leadership, the Navy led the way in supporting the 
acquisition and transition of SBIR and STTR seeded 
technologies, awarding more Phase III contracts than the rest 
of the DOD combined.
    The following witness will be Dr. Barry Johnson, who is 
Division Director of Industrial Innovation and Partnerships 
(IIP) at the National Science Foundation. In this role, Dr. 
Johnson fosters partnerships in advanced technology innovation 
and invests in science and engineering research across all 
disciplines that have the potential for high impact in meeting 
national and societal needs. He came to the National Science 
Foundation following his tenure as a Senior Associate Dean at 
the University of Virginia where he was also the L.A. Lacey 
Distinguished Professor of Engineering.
    And after that we will have Dr. Matthew Portnoy, the 
Department of Health and Human Services and the National 
Institutes of Health's SBIR and STTR Program Coordinator. Dr. 
Portnoy and his staff provide scientific program management and 
oversight, support conferences and scientific meetings, ensure 
that NIH extramural staff are trained to meet the demands of 
their job, and communicates funding opportunities and critical 
information concerning NIH's programs, policies, and procedures 
to the biomedical research and training community. We welcome 
you here as well.
    Finally, we will hear from Mr. Bob Smith, who is Director 
of the SBIR and STTR programs for the Department of the Navy. 
He is charged with assisting small businesses in getting their 
technology fully developed, tested, and inserted into the 
products and services used by our naval warfighters. 
Previously, he was Director of Disruptive Technologies for the 
Office of Naval Research and Program Manager for the Navy's 
Rapid Innovation Fund, which supports small business concerns 
rapidly inserting their technology and acquisition programs of 
record. A retired Marine Corps officer with over 3,000 flight 
hours in various military aircraft, he was the 2013 recipient 
of the Department of the Navy Greta B. Stinson Advocacy Award, 
one of the annual Navy Acquisition Excellence awards.
    As you can see, we have a very distinguished panel out here 
this morning by hearing their bios here. So thank you very much 
for being here. And Mr. Williams, we will begin with you. You 
have 5 minutes.

     STATEMENTS OF JOHN WILLIAMS, DIRECTOR, INNOVATION AND 
TECHNOLOGY, OFFICE OF INVESTMENT AND INNOVATION, UNITED STATES 
 SMALL BUSINESS ADMINISTRATION; BARRY JOHNSON, PH.D., DIVISION 
  DIRECTOR, INDUSTRIAL INNOVATION AND PARTNERSHIPS, NATIONAL 
 SCIENCE FOUNDATION; MATTHEW PORTNOY, PH.D., OVERALL HHS SBIR/
  STTR PROGRAM MANAGER, NATIONAL INSTITUTES OF HEALTH; ROBERT 
 SMITH, DIRECTOR, SBIR/STTR PROGRAMS, OFFICE OF NAVAL RESEARCH

                   STATEMENT OF JOHN WILLIAMS

    Mr. WILLIAMS. Chairman Chabot, Ranking Member Velazquez, 
and distinguished members of the Committee, thank you for 
inviting me here today to discuss the Small Business Innovation 
Research and Small Business Technology Transfer Programs, 
affectionately known as America's Seed Fund. Last month, SBA 
Administrator Marie Contreras-Sweet discussed the state of 
entrepreneurship at NASDAQ Headquarters in Times Square. This 
unprecedented opportunity gave SBA a wonderful platform to 
explain the importance of small business on the American 
economy. The administrator highlighted the great value of the 
SBIR program and how it harnesses American ingenuity to solve 
big issues. The SBIR program drives innovation in areas ranging 
from national security to public health, to food and space 
exploration.
    In the financial tech capital of the world, SBIR was 
recognized as the institution which creates and provides 
opportunity through SBIR seed funding to tens of thousands of 
high-tech firms, and NASDAQ is the proper place to begin the 
discussion of SBIR because it represents the ultimate aims of 
the program--growing innovation, job growth, and business 
growth.
    Today we are here going to speak a lot about oversight, 
reporting and compliance, but we must not miss the point that 
the return on investment from SBIR is truly astounding. The 
combined market caps of just two SBIR firms, Qualcomm and 
Biogen is $120 billion, triple that of what American taxpayers 
have invested in the program over the lifetime. Our next 
generation of companies with SBIR funding are developing game-
changing technologies, like Mango Materials, headed by a female 
Ph.D. out of Stanford, a company tackling waste reduction 
through a novel process of creating truly biodegradable 
plastics from methane waste. Made in Space, a company 
pioneering the use of 3D printing on the international space 
station to support extended space exploration.
    SBA works very closely with the agency's program managers 
and external stakeholders to ensure that the intent of Congress 
is carried out in the operations of the program. It is critical 
to remember that although there is one SBIR program policy 
directive issued by SBA, it guides programs at 11 different 
agencies with varying missions, directives, and goals, as well 
as their established, yet different models and methods for 
executing the programs.
    Thanks to this Committee, the program was reauthorized in 
2011, and since reauthorization, SBA has successfully issued 
five major interagency policy Committee reports on outreach, 
commercialization, award-size flexibility, evaluation 
frameworks, and the SBIR.gov public and government databases. 
We have implemented with agency support over 60 legislative 
changes directed by that reauthorization. We recommended and 
built out our new SBIR.gov business intelligence platform. We 
coordinated and led a highly successful outreach campaign, 
hitting 22 States across the country in 2015 through our SBIR 
road tours and regional events, and we have accomplished a 
great deal with a limited budget but there is more work to be 
done. The Committee asked us to speak on the potential 
improvements to boost commercialization, improve data 
collection and reporting, while limiting the paperwork burden.
    I have some summary thoughts on these. Commercialization 
was improved by the 2011 reauthorization but more definitely 
can be done. Firms are severely limited in using SBIR funds to 
support activities that help commercialize the firm's products 
and services, like market assessment, patents, and scale up. 
Agencies are still struggling to report Phase III award 
activity and establishing goals and incentives to increase 
Phase III activity within their agency. And we need to look at 
other ways agencies, especially DOD, to make more funds 
available for the needed test and evaluation or technology 
maturation, which moves the technology from a Phase II to a 
Phase III.
    On data collection, we are much better off than we were in 
2011. SBA and the agencies have all worked hard to implement 
many new data fields that Congress requested us to collect. I 
strongly encourage you all to look at SBIR.gov to see the 
amount of data that is now available in real time, but this is 
still a work in progress and continues to require funding and 
time to get where we want to be.
    Limiting the paperwork burden continues to be a challenge 
where I do not believe that we have made much progress. While 
this is a goal of the reauthorization, so, too, was increasing 
the data collected and adding tools to reduce fraud, waste, and 
abuse. Another challenge here is that most agencies require 
SBIR applicants to apply using the same processes that major 
universities or large businesses do. There are some 
organizations, like DOD, that have a special submission portal 
at NSF with their FastLane site that are more small business 
friendly than grants.gov. But more can and should be done to 
help standardize the proposal template and submission process. 
I also think we need to focus on the time it takes to move from 
proposal submission to award, especially between Phase I and II 
when the firm is expected to hold staff in place while they are 
waiting for funding.
    As SBA's Director of Innovation and Technology, I will 
continue to work closely with our sister agencies to make sure 
that the SBIR and STTR programs are top priorities across the 
Federal Government. I will hold agencies responsible for the 
allocations required by statute and I will continue to work 
with you to improve these programs. They are true gems and we 
must make sure our small businesses know about these 
opportunities. Thank you for your time.
    Chairman CHABOT. Thank you very much.
    Dr. Johnson, you are recognized for 5 minutes.

                   STATEMENT OF BARRY JOHNSON

    Dr. JOHNSON. Mr. Chairman and members of the Committee, 
thank you for this opportunity to testify regarding the Small 
Business Innovation Research and Small Business Technology 
Transfer programs at the National Science Foundation.
    As mentioned, my name is Barry Johnson, and I am Director 
of the Division of Industrial Innovation and Partnerships in 
the NSF Directorate for Engineering. In this role I have 
oversight responsibility for the SBIR and STTR programs at NSF. 
For ease of communication, I will use the term ``SBIR'' program 
to refer to the collective SBIR and STTR programs.
    The SBIR program is an integral part of the NSF strategy to 
stimulate innovation and address societal needs through the 
commercialization of the results of research. We fund small 
businesses at very early stages when the technology risk is 
high and before the private sector is normally willing to 
invest. Since NSF is not the ultimate customer of the 
innovation stimulated by the SBIR program, the NSF SBIR 
research topics are oriented to the needs of the marketplace 
and the Nation as a whole.
    In 1998, the NSF SBIR introduced a new supplemental program 
called Phase IIB, and it is a platform to stimulate NSF-funded 
active Phase II grantees to attract private sector funding for 
further technology commercialization. The Phase IIB proposal is 
submitted while the company is conducting the Phase II 
research, and with Phase II research underway, the small 
business is better positioned to attract investors because most 
of the early stage technology risk has already been addressed 
with NSF funding. The Phase IIB program requires that third-
party commitments be double the level of supplemental funding 
from NSF up to a maximum of $500,000 from NSF. The Phase IIB 
supplement was initiated to further fill the gap between the 
funding from an NSF Phase II grant and the funding ultimately 
required to achieve successful commercialization. The 
supplemental funding from NSF ranges from $50,000 to $500,000. 
Third-party investors include both public and private sectors. 
For supplements over $250,000, the small business must 
participate in a reverse site visit to NSF with its investor.
    In addition to providing funding, we also assist our 
awardees by providing them with an educational component based 
in part on the NSF Innovation Corps, or so-called I-Corps 
program, that helps entrepreneurs and their small businesses 
understand market needs and customers, thus increasing their 
chances of successfully commercializing new technologies. The 
NSF SBIR program is also staffed with a team of program 
officers with strong technical backgrounds in the areas 
supported by the program and with business experience in large 
and small organizations. The SBIR program officers generate the 
topics, review the proposals, manage the awards, and provide 
significant mentoring for the grantees.
    NSF monitors the commercial outcome of our Phase II 
awardees and has found that 32 percent of the NSF SBIR grantees 
were fully successful and that they have at least $1 million in 
revenue 6 years after completing the NSF SBIR Phase II award. 
Companies note strong intellectual property, position strong 
academic collaborations, and strong ties to market leaders as 
major reasons for success. The success rate for companies 
receiving Phase IIB awards using the same measure was 65 
percent. The impact of the Phase IIB program on success rates 
is thus very significant. The national academies in the recent 
report on SBIR at the National Science Foundation found similar 
commercialization impacts of the NSF Phase IIB program.
    Mr. Chairman, this concludes my testimony. On behalf of the 
National Science Foundation, the SBIR program, and our 
awardees, I want to thank you for this opportunity to highlight 
a program that provides small businesses with the means to keep 
America on the forefront of innovation. I would be pleased to 
provide any additional information that would be useful to you 
and the Committee. Thank you.
    Chairman CHABOT. But in any event, Dr. Portnoy, you are 
recognized for 5 minutes.

                  STATEMENT OF MATTHEW PORTNOY

    Dr. PORTNOY. Thank you. Good morning, Chairman Chabot, 
Ranking Member Velazquez, and members of the Committee. My name 
is Dr. Matt Portnoy, and I am the coordinator for the 
Department of Health and Human Services SBIR and STTR programs.
    My remarks today will primarily focus on NIH because our 
agency represents 98 percent of the department's programs. 
However, my office coordinates closely with the CDC, FDA, 
Administration for Community Living, and the Administration for 
Children and Families, our sister HHS agencies that also fund 
the programs. HHS is the second largest funder of the programs 
and the largest Federal supporter of biomedical research.
    The NIH SBIR/STTR programs are ideally suited for creating 
research opportunities for U.S. small businesses to stimulate 
technological innovation. Examples of successful NIH SBIR 
funded technology includes the Lift Lab's Liftware that creates 
stabilizing technologies to help people with essential tremors 
and Parkinson's Disease and SenesTech, which has technology to 
manage rodent populations using a nontoxic approach that limits 
reproduction.
    I am pleased to tell you that the implantation of the 
changes included in the Reauthorization Act of 2011 are 
complete. This year, NIH increased its set-asides for both 
programs to 3 percent and .45 percent, respectively. The 
overall budget for the programs has increased from $680 million 
pre-reauthorization, to the current set-aside of $877 million, 
an increase of nearly $200 million. NIH and HHS continue to 
meet and exceed the required set-aside spending each year as 
found by annual GAO reports.
    We have greatly increased our outreach efforts the past 
several years. We continue to partner with the NIH 
institutional development awards or IDeA program to reach 
underserved small businesses in IDeA States and have increased 
outreach to women-owned and minority-owned businesses. The last 
3 years, we have reached over 24,000 individuals from all 50 
States, D.C., and Puerto Rico, including nearly 1,000 women-
owned small businesses and 650 minority-owned businesses, as 
well as efforts targeting all 23 IDeA States and Puerto Rico. 
We anticipate increased applications from these groups further 
diversifying the program.
    NIH issued its first direct Phase II SBIR solicitation in 
2014 and made our first awards in 2015. Success rates as 
predicted track along with Phase I and are 19 percent, for a 
total of 65 awards made last year. NIH and CDC recently 
launched their commercialization readiness pilot program, or 
CRP, in the fall of 2015. Our first receipt dates for these 
applications was this past January 2016 with awards to be made 
this summer. NIH has also implemented the STTR phase zero proof 
of concept centers through the NIH Research Evaluation and 
Commercialization Hubs, or REACH program, and I issued three 
REACH awards in 2015 to the University of Louisville, the 
University of Minnesota, and a consortium of four institutions 
called the Long Island Bioscience Hub. We held a kickoff in 
April 2015 to share the best practices learned from the NIH 
Centers for Accelerated Innovation, a similar program funded by 
two of our institutes and co-funded by the phase zero 
authority.
    In 2015, NIH's average time from receipt to notice of 
intent to award was less than 200 days, well below the 12-month 
requirement, and we have implemented significant changes in our 
business practices to continue to shorten this time period.
    HHS is grateful for the recent extension of the 
Administrative Fund Pilot Authority through the end of fiscal 
2017. HHS has spent 0.9 to 1.5 percent of our SBIR set-aside 
per year towards a variety of activities, including the 
increased outreach efforts I mentioned above, participation in 
co-funding of the SBA road tour, streamlining our award cycles, 
increase support for commercialization, funding the mandated 
national academy studies, which found our programs are meeting 
goals, with the exception of the outreach to minorities and 
women, and providing support for new programs, to name a few. 
These activities would not have been possible without these 
additional funds and would need to be severely curtained or 
eliminated without permanent funding.
    HHS appreciates the flexibility to fund awards at 
appropriate budgets that may exceed the established guidelines 
if the science proposed warrants such an exception to ensure 
successful outcomes. HHS offers a suite of technical assistance 
programs, including our Niche Assessment program, 
Commercialization Accelerated program, and a Life Science 
Focused Pilot of the NSF I-Corps program.
    In conclusion, the HHS SBIR and STTR programs seek to fund 
the most scientifically promising projects for which private 
and public funds are not traditionally available, and we strive 
to leverage our portfolio across the biomedical enterprise.
    This concludes my statement. Thank you for your attention 
and I look forward to answering any questions.
    Chairman CHABOT. Thank you very much, Doctor.
    Mr. Smith, you are recognized for 5 minutes.

                   STATEMENT OF ROBERT SMITH

    Mr. SMITH. Chairman Chabot, Ranking Member Velazquez, and 
distinguished members of the Committee, thank you for the 
opportunity to appear before you today and discuss small 
business innovation research and small business technology 
transfer.
    The Department of the Navy greatly values our SBIR/STTR 
program because we are taking a great program and making it 
better by improving the business of the science. Small business 
and industry value our program because of the continuous 
outreach to create new business and science opportunities. 
Through SBIR/STTR, American small business throughout your 
States have proven over and again their ability to provide 
lean, agile, and innovative solutions to our warfighter 
requirements to help our service deal with the biggest 
challenge of its defense and humanitarian missions.
    As Mr. Sean Stackley, Assistant Secretary of the Navy 
Research Development and Acquisition said, ``Small business and 
competitive healthy small business industrial base are vital to 
the long-term success and affordability of the department, as 
well as our national security. The evidence is overwhelming 
where affordability is paramount, a strategy that includes 
small businesses creates affordable outcomes and promotes 
innovation and technical advancement.''
    I wish I had more time to talk about the incredibly 
innovative SBIR/STTR firms participating in the Navy's program. 
Aggressive, dedicated, responsive, and resourceful are just 
some of the adjectives I would use to describe these incredible 
businesses.
    Two examples of outstanding Navy SBIR/STTR contributions to 
our military and our Nation are EMILY and Automated Celestian 
Navigation. The Emergency Integrated Lifesaving Lanyard, called 
EMILY, is a robotic lifeguard deployed worldwide by Hydronalix, 
a rural Arizona company. Several of EMILY's technology derived 
from a 1991 Office of Naval Research STTR project to track well 
migration. The tracking system reconfigured as the Silver Fox 
unmanned air vehicle was deployed in 2007 to provide convoy 
protection to Marines in Iraq saving lives. The same basic 
technology package reconfigured as EMILY is supporting first 
responders throughout the U.S. and other nations and saving 
lives today in the Mediterranean Sea refugee crisis. Trex 
Enterprises' Automated Celestial Navigation system provides a 
solution in GPS-denied environments through a fully automated 
star tracker for imaging individual stars both day and night to 
enhance navigation capability.
    Initially focused on Navy challenges, ACN attracted 
attention across the government, the result being a fellow 
agency ordering 15 systems with applications in crime fighting 
and drug interdiction. Over the last 6 years, using its non-
SBIR funds, the Navy has invested an average of over $500 
million a year in SBIR/STTR technologies. This investment we 
believe leads the Department of Defense and the Federal 
Government.
    There are four primary factors that have made the Navy's 
SBIR/STTR program successful.
    Culture. Our naval acquisition community considers SBIR/
STTR part of the solution for delivering quality innovations to 
our warfighters quickly and cost effectively.
    Team work. With emphasis on delivering solutions to the 
warfighters, our dedicated professionals make continual 
improvements to small business performance through our proven 
SBIR/STTR transition program in its annual forum. The forum, 
being conducted currently with the Sea, Air, and Space 
Symposium will happen 16-18 May at the Gaylord at National 
Harbor. I would be honored if you and your staffs can come by 
and have a visit with us.
    Moreover, the Department of the Navy guidance is aligned 
with the Department of Defense Better Buying 3.0. As I 
mentioned in my testimony before the Senate Small Business and 
Entrepreneurship Committee, I believe that although we collect 
and report an incredible amount of information on the SBIR/STTR 
programs, we are not providing you the data that you need. I 
recommend a data summit where we collectively identify the 
information needed to effectively run the program, determine 
how to effectively collect that data, and rapidly provide 
needed reports on the execution of the program.
    Performances mentioned above led former Secretary Jacques 
Gansler to tell the Senate Arms Service Committee recently that 
SBIR/STTR should be made a permanent program. The Department of 
the Navy continues to seek improvements in our program and to 
seek a more diverse vendor base, increase small business 
integration into the Navy business, and levy small business 
advances for Navy requirements.
    I look forward to working with you and your staff regarding 
the importance of SBIR/STTR authorities. Thank you.
    Chairman CHABOT. Thank you very much. We thank all the 
panel members. I recognize myself for 5 minutes.
    Mr. Williams, I will begin with you if I can. Across 
agencies, what is being done to improve the data collection and 
dissemination? The 2011 reauthorization required a great deal 
more reporting to the SBA and also to us here in Congress. What 
are you doing to help improve the data collection efforts 
across the agencies? Also, you had mentioned how unsuccessful 
we have been in reducing paperwork. If you would like to 
comment on perhaps something else we might try where it has not 
necessarily worked in the past.
    Mr. WILLIAMS. Well, I will start with the paperwork side, 
which is a challenge. But most of that I believe falls outside 
of the chain of command of the SBIR program offices. It is more 
on the head of contracting and head of granting organizations. 
The way a proposal needs to be submitted and the things that 
need to come along with that are driven by FAR and DFAR and by 
those communities. I think one of the challenges is, and 
understandably, you have been trying to put that emphasis on 
us, which we have tried to do, but there is only so much the 
SBIR management community can do. I think those other 
communities are tasked with kind of establishing how 
contracting is done, and that is where most of the paperwork 
happens. That might be an approach to maybe ask how they can 
reduce some of those things. But I do think in trying to then 
make common proposals and things like that, so at least one 
form is working, maybe not across the board but at least for 80 
percent. We can work on those things.
    As far as data collection, we have done a lot. When the 
legislation passed, we had a pretty old system at SBA and data 
collection, and so we modernized that system and we have spent 
a lot of time and effort to develop that system, and then 
portals so that the data can get pushed by the agencies. The 
challenge has been we have about 150,000 records, and each 
record has over 70 fields, so it is a massive amount of data. 
When you add additional requirements, you have to tag those to 
the original records, and so it has been challenging, but we 
have made a lot of progress, and the agencies have been very 
successful and helpful in trying to, because they have to push 
it to us and we have to check it and all that. We are making 
great progress but there is more to be done.
    Chairman CHABOT. Thank you very much.
    Mr. Smith, I will move to you next. First of all, thank you 
for your service in the Marine Corps. We appreciate it very 
much.
    The 2011 reauthorization bill, among other things, 
authorized the Department of Defense to establish goals to 
increase SBIR technology transition and to use incentives to 
encourage prime contractors to meet those goals. Has the DOD at 
large implemented these provisions?
    Mr. SMITH. Chairman, I know they are working it. I have not 
seen specific goals. I do know that DOD instruction for 
acquisition 5002 has been changed and modified to reflect that 
you will have small business goals. I do not think there has 
been a specific metric applied to those major acquisition 
programs. I know owe are discussing a metric, but like all 
other people, it is hard even within the Department of Defense 
to have one single metric that matters. Is it Phase III 
dollars? Is it value to the warfighter? Is it lives saved? It 
is hard to measure some of these things and collecting that 
data to make a management decision can be incredibly difficult.
    Chairman CHABOT. Okay, thank you very much.
    Dr. Portnoy, let me go to you next. You mentioned that you 
encourage small businesses to submit their own proposals that 
fit your mission as opposed to having them all respond to your 
solicitations. Could you talk about how that process works a 
little more?
    Dr. PORTNOY. Yes. Thank you, Mr. Chairman. In fact, we do 
both. We have what we call a parent solicitation, which accepts 
investigator initiated applications. This is where small 
businesses can propose any technology that fits within our 
mission base, so any life science or biomedical, bio behavioral 
technology. We do not presume to know where the best or the 
next best innovation will come, so we leave it to the community 
and entrepreneurs to tell us that. About 70 percent or so of 
our applications and awards are what we call ``investigator 
initiated.'' The remainder are in response to specific funding 
calls where we put out more targeted topics via both grants and 
contracts, where we have identified are more specific need for 
one or more of our institutions to accomplish its mission.
    Chairman CHABOT. Thank you very much. I have a little bit 
of time left. Dr. Johnson, I will move to you before my time 
runs out.
    As you mentioned, the National Science Foundation, excuse 
me, yes, is not the ultimate customer of the innovation 
stimulated by the SBIR program. Could you talk a little more 
about how the SBIR program's focus on commercialization 
supplements the basic and applied research being done at the 
NSF?
    Dr. JOHNSON. Yes, sir. As you know, a lot of NSF's funding 
goes into the support of fundamental research, and one of our 
goals is to actually transition that fundamental research out 
into commercialization. We emphasize with our SBIR program, not 
only in the review process, not only the technology and the 
quality of that technology, but we also bring business 
reviewers into that process to review the proposal for 
commercialization opportunities. They are looking at it with 
the eye of a business individual to determine if there is a 
market, if that market can be served by this particular 
technology, and if this team and the idea that is being 
presented has the capability to ultimately achieve technology, 
commercialization, and success.
    Chairman CHABOT. Thank you very much. My time has expired. 
I will now yield 5 minutes to the ranking member.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Dr. Johnson, the NSF has a very successful Phase II program 
whose participants commercialize at high levels. According to 
the economic study, 81 percent of projects that receive a 
sequential award under the program achieve some level of sales. 
What about the program makes it so successful?
    Dr. JOHNSON. I think part of what makes it so successful is 
that we have a public-private partnership in that Phase IIB. We 
have private investors or private partnerships for that 
particular small business that are coming to the table to 
actually help the company, either through investments, 
purchases of the product that that particular company is 
providing, and help with the commercialization. I believe that 
ultimately it is the public-private partnership that exists 
within that Phase IIB program that is critical to its success.
    Ms. VELAZQUEZ. So your Phase IIB requires a 2-to-1 match; 
right?
    Dr. JOHNSON. Yes.
    Ms. VELAZQUEZ. Of a third-party investment to SBIR dollars. 
How has this component of the program helped businesses 
commercialize the research?
    Dr. JOHNSON. I think one of the ways that it helps is that 
investors are constantly looking for ways that they can get 
more money for their investment or more effort for their 
investment.
    Ms. VELAZQUEZ. What do you think is the key to replicating 
the success in other agencies?
    Dr. JOHNSON. I think the program is time-intensive. It does 
require significant effort on the part of our program officers 
because in most cases we are doing site visits at NSF where we 
bring the team in. We have a couple of hour presentation by the 
small business. We talk to their investors. I think it is a 
time-intensive nature to this particular program, and I think 
that is the key to replicating it at other places.
    Ms. VELAZQUEZ. Okay. Mr. Smith--thank you--we have seen 
DOD, that there is a particular rush in transferring the 
technology over from research phase to incorporation in the 
field. In fact, GAO could not even assess the extent of tech 
transfer because the data is not being collected. How is the 
Navy addressing the issue of ensuring successful tech transfer?
    Mr. SMITH. Ma'am, we do most of that when we start making 
these agreements on who is going to fund the 2.5s, the 
subsequent Phase IIs. Saying we have technology transition 
agreements where the parties agree this is the research I am 
going to do, here are the funds I am going to bring to it, and 
if successful, this is the program where this technology will 
be inserted----
    Ms. VELAZQUEZ. Can you explain why the GAP report basically 
says that it is difficult to even assess??
    Mr. SMITH. Because we do not track that individual 
component. So it is sometimes hard to say, where did that 
component go within the system into the platform? So it can be 
difficult to track an acquisition who is building my carrier or 
my aircraft, to understand where that ship or that algorithm 
from the small business eventually ended up.
    Ms. VELAZQUEZ. Why is it so difficult to track? We need 
data, you know.
    Mr. SMITH. Yes, ma'am.
    Ms. VELAZQUEZ. In order to exercise our role in terms of 
oversight and see what is working and what is not, we need to 
have the data.
    Mr. SMITH. One of those is a temporal challenge, ma'am, 
because it can take 5 to 7 years to transition the technology, 
and those are resources to track an individual research effort 
along its progression and when does it get to a program. Or 
when did it spin off to another program? It is difficult, and 
we do not have the resources to track 5, 10 years.
    Ms. VELAZQUEZ. Talking about data, Mr. Williams, SBA has 
published guidance on benchmarks for Phase I to Phase II 
transitions. The goal of these benchmarks is to prevent the 
same companies from continually winning Phase I awards without 
progressing to Phase II. Are agencies enforcing these 
benchmarks? If so, have there been any cases where a company 
was made ineligible for the year?
    Mr. WILLIAMS. Yes. That has been implemented across all the 
agencies. Twenty-five percent of your Phase Is have to go to 
Phase II. If they do not, you cannot submit a proposal for a 
year. That is implemented across all the agencies, and it is 
about 6 to 12 companies a year that will fall into that. Some 
of them have actually graduated.
    Ms. VELAZQUEZ. So the agency is keeping track?
    Mr. WILLIAMS. Yes. We push the information to the agencies. 
We contact the firms and then we push that information to the 
agencies of the firms that are on that list for the year.
    Ms. VELAZQUEZ. Mr. Williams, in the last reauthorization, 
the use of the 3 percent funds to cover administrative costs 
was an issue for me. And so the pilot was recently extended. 
The committee has yet to see any reports from SBA. We do not 
know the effectiveness of the pilot and whether agencies are 
using these funds on allowable costs. Why should we continue to 
allow for the SBIR funds to be used for administrative costs 
when we cannot even be sure if the funds are used as it was 
stated?
    Chairman CHABOT. The gentlelady's time has expired but you 
can answer the question.
    Mr. WILLIAMS. So quickly, I committed to submitting that 
report by the 30th of June to Congressman Moulton the last time 
I was here, and I will do that. We are working on that.
    Ms. VELAZQUEZ. That will cover 2012? 2013? 2014?
    Mr. WILLIAMS. That will cover up to--well, it started in 
2013, 2014, and 2015.
    Ms. VELAZQUEZ. Right. Okay.
    Mr. WILLIAMS. Yes. So we will work on that.
    Ms. VELAZQUEZ. Thank you.
    Chairman CHABOT. The gentlelady's time is expired.
    The gentleman from Missouri, Mr. Luetkemeyer, who is the 
vice chairman of this Committee.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman.
    I think I can solve your problem without being able to see 
this. If you just issue pillows to everybody we could sit up 
higher and we could see over the top of the deck here. Okay.
    In all seriousness, thank you guys for being here this 
morning. Good stuff. I appreciate your participation and your 
information.
    Mr. Williams, you deal with these programs every day. Can 
you tell me how we can improve them? And my question is, I know 
you have talked about the data collection already. What about 
things like tax benefits, our treatment of--is there a way to 
improve the way the small business innovating folks can have a 
better tax advantage to be able to do some of this? Or perhaps 
maybe the size of the award, is it too small, too large? And 
the speed with which the awards are given, either going too 
slow, too fast? Can you give me some ideas on some of those 
right quick?
    Mr. WILLIAMS. No, because it is hard. But yeah, I will do 
my best. So I think we have been able to do the administrative 
dollars, which have really helped us address all of those 
areas, but why I say no is what we found is there is no ``one 
size fits all.'' NSF does things a certain way, but even with 
NSF, a software project is different than a materials 
development project, is different than a health project. Trying 
to have one way and expect a Phase I to go to a Phase II to go 
to a Phase III we know does not work, and that is why you have 
to have flexibility. Some will need more money. I think, 
funding in increments, so if something does not pan out we cut 
it off and we put more money in other things, but you do need 
more money in certain projects, and then you have to be able to 
assess that with the expertise at the agency to say, wow, this 
has transitioned. A program of record is coming forward. The 
answer is it takes more management. What is unique about SBIR 
is the program makes all the money go to the small businesses 
and not the government entity to spend any in-house. That is 
where the 3 percent helped a lot and we are doing more with 
that.
    Mr. LUETKEMEYER. Okay, quick question. What percentage of 
applicants are awarded?
    Mr. WILLIAMS. For Phase I, it varies a little bit, but it 
is on average about 15 percent of the Phase I proposals that 
come in are awarded, and then about 40 to 50 percent of those 
go from Phase I to Phase II.
    Mr. LUETKEMEYER. Okay.
    Mr. WILLIAMS. And then about that percentage go to Phase 
III.
    Mr. LUETKEMEYER. The 85 percent that do not get awarded, 
what is the problem with their presentation? Is it something 
does not work? It does not have a viable business plan? Is it 
pie in the sky or what? What is the problem?
    Mr. WILLIAMS. Yeah, it would be all of those. We look at 
three things. We look at the quality of the project. Certain 
ones that are granted, they are focused on a specific need. If 
it does not hit that need, then they are not good and they not 
get evaluated well.
    Mr. LUETKEMEYER. Okay, so is it need evaluated by you or is 
it need evaluated by----
    Mr. WILLIAMS. By the individual agencies and the technical 
experts within those agencies. Now, some of them that are 
grantor organizations push it out to peer reviews. They will 
bring in the experts in the material sciences and things. 
Contracting shops will do it in-house. Like, DOD uses their 
experts within house.
    Mr. LUETKEMEYER. I think, Mr. Smith, you talked about them 
having business teams review it, did you not? Or was that Dr. 
Portnoy?
    Mr. SMITH. No, sir. That was NSF.
    Mr. LUETKEMEYER. Okay, I am sorry, Dr. Johnson, you talked 
about having business teams review the applications for 
viability of that applicant; is that right?
    Dr. JOHNSON. Yes, sir.
    Mr. LUETKEMEYER. I think you had some numbers, or I was 
going to ask--I think Dr. Portnoy, I believe, had some numbers 
on successes for his people.
    Dr. PORTNOY. Yes, sir. Our Phase Is are around 15 to 20 
percent, and Phase II is 35 to 40 percent. That more or less 
holds from year to year. We do have a mandated two-tiered peer 
review process by NIH's authorization act, and so we use 
external peer review for Phase I where we use both business and 
academic experts and commercialization experts, and we strive 
to have around 25 to 50 percent of our review panels be from 
the business side. Our second level of review is our advisory 
council, which is more of an administrative review prior to 
award being made.
    Mr. LUETKEMEYER. Well, I think it is important, you 
mentioned, to have business folks on the council. I mean, if 
you have business people on your review boards, I mean, they 
understand how the real world works, whether this is viable or 
not. To me that would be very important on your second team as 
well, which you indicated not much participation there.
    Mr. Williams, you also talked about, mentioned NASDAQ a 
minute ago which makes me think, is there plenty of capital 
available for a lot of folks whenever they come out of the 
program to be able to take this product or service to the next 
step? Or have you seen a problem with funding at that next 
level for the outside funding?
    Mr. WILLIAMS. Overall, we have seen a problem with that 
funding to the next level because risk, that group is more risk 
averse than they had been in the past. Also, they do not like 
to invest in DOD projects as much as they like to do life 
sciences. It depends on some of that, and half the program is 
DOD. You typically will not get a venture investor in a DOD-
type project.
    Mr. LUETKEMEYER. I have a couple seconds left. Mr. Smith, 
would you like to comment on that?
    Mr. SMITH. I would have to concur with Mr. Williams. From a 
venture capitalist position, when most of our contracts are 
going to be cost plus award fee of 6 percent, that is not going 
to drive them to that.
    Mr. LUETKEMEYER. So that begs the question, do you go back 
to companies that have worked with you before as a preferential 
awardee versus a new company that comes to you with a new idea?
    Chairman CHABOT. The gentleman's time is expired, but go 
ahead and answer the question.
    Mr. SMITH. No, sir, because the first gate will be does it 
technically address my challenge?
    Mr. LUETKEMEYER. Is the idea or the product going to fit 
with your program?
    Mr. SMITH. Yes, sir.
    Mr. LUETKEMEYER. Very good. Thank you, Mr. Chairman. I 
yield back.
    Chairman CHABOT. Thank you. The gentleman yields back.
    The gentlelady from New York, Ms. Meng, who is the ranking 
member of the Agriculture, Energy, and Trade Subcommittee, and 
whose district I visited last week and did a field hearing with 
her, and one with Ms. Velazquez as well, both in New York City, 
and it shows the bipartisan cooperation on this Committee. You 
are recognized for 5 minutes, and we will not take any of that 
out of your 5 minutes.
    Ms. MENG. You kept your word. Thank you, Mr. Chairman, for 
coming out to our district in Queens, New York. We really 
enjoyed having you, and of course, as always, our ranking 
member, who comes often.
    To the panel in general, we saw R&D budgets decrease as a 
result of sequestration. How has this in any way affected the 
programs at your agencies? Anyone is welcome to answer.
    Mr. SMITH. The first is numerical. If it is 3 percent of my 
extramural, if the R&D budget is going down, there will be less 
money there. We have also seen that my program managers will 
become more risk averse. My challenge is getting across that 
valley of death. But that is where my funds, the 2.5, the 
subsequent Phase II, I can encourage them to put their money in 
if they can see someone else is going to help progress that 
technology. It has created a challenge. We have to work harder 
at it.
    Dr. PORTNOY. At NIH, during that year we, of course, 
received an across-the-board cut. The SBIR and STTR was 
affected proportionately, and as such, our awards were reduced 
a number that year. That rebounded when those cuts were 
restored the following year, and then in 2016, the current 
year, the NIH received a very large increase in its budget that 
was proportionately passed down to SBIR for a larger budget 
this year.
    Ms. MENG. To Mr. Williams, it would appear that 
universities have an ability to reach a significant number of 
potential SBIR participants. Has SBA partnered at all with 
these institutions to reach underrepresented groups? What 
incentives or resources could we provide these institutions to 
encourage outreach to underrepresented groups?
    Mr. WILLIAMS. Well, we have begun two things. Last year, we 
kicked off what we call our SBIR road tours. We went to 22 
States, and many of those were held on university campuses, 
probably at least half of them. We also have a program called 
FAST, and then it has got sister funding called FAST to SBTDCs. 
Both of those programs typically go to university-oriented 
SBDCs or organizations, and part of the motivation and the 
requirement on that is to reach underrepresented communities. 
The three categories are an underrepresented State, a minority, 
or women companies and STEM-oriented people.
    Ms. MENG. Lastly, I wanted to ask about minority and women-
owned business participation, specifically with NSF and NIH. 
How have you found outreach? Which techniques have been 
successful in terms of outreach, whether it is to help firms 
succeed once they get an award or hoping to lead an increase an 
applications and awards?
    Dr. JOHNSON. One of the programs that we have started to 
see significant success with is the I-Corps program, and it in 
part addresses the issue you raised in your previous question. 
In I-Corps, we fund a team, which includes the technical 
expert, which is normally a faculty member at the university 
and an entrepreneurial lead, normally a student that wants to 
start a company, and a business mentor who is an experienced 
entrepreneur or business person. Those three go through an 
intensive process of customer discovery to determine whether 
there is a commercial opportunity for the idea that they would 
like to bring forward and use to start a company. We have had 
more than 600 teams go through that training. About 39 percent 
of those teams have a woman as a member, so we are beginning to 
see an increase in the number of women that are engaged in 
those entrepreneurial training activities, and then we are 
beginning also to see significantly enhanced success rates in 
the SBIR program from teams that have gone through I-Corps 
training as a precursor.
    Dr. PORTNOY. Thank you. This is a very challenging problem 
as you no doubt are aware, and so we are taking a multipronged 
approach, both within the agency at NIH and with all of the 
agencies with a trans-agency outreach group. We are doing 
things like participating in the outreach tour, making sure 
whenever we go on outreach that we require the organizers to 
find and identify their local women and minority-owned 
businesses because they are the best sources for that. We also 
have been doing quite a bit in beginning to work with 
professional organizations, such as Women in Bio and other 
related organizations. We did webinars for them. We are working 
with HBCUs as recently as last week doing a webinar and having 
an in-person meeting at NIH to bring in those communities as 
well.
    Chairman CHABOT. The gentlelady's time is expired. Thank 
you very much.
    The gentleman from California, Mr. Knight, is recognized 
for 5 minutes.
    Mr. KNIGHT. Thank you, Mr. Chair.
    To Mr. Smith, it pains me as a soldier to say this, but as 
you are being very successful in the Navy, are other DOD 
agencies kind of modeling or looking after what you are doing 
and doing similar things? Or are they trying to improve? Or can 
you give me an idea of what you're doing that others are not 
doing?
    Mr. SMITH. The quick answer is yes. One of the things 
working with DOD is we continually discuss best practices, what 
will work with our organizations. Some of the challenges they 
have have to be structural with them, but I have got to say my 
sister services are interested in transitioning the 
technologies to their warfighters.
    Mr. KNIGHT. Okay. On that same line, there are a couple of 
us up here that sit on Armed Services and acquisition is the 
number one goal right now, how we can speed it up, how we can 
get it quicker to the warfighter, things of that nature. Can 
you give me an idea of issues that you are working on that 
speed up that process that make the acquisition process not so 
bureaucratic?
    Mr. SMITH. Our challenge, as Mr. Williams spoke to, the FAR 
and DFAR. When my SBIR companies have to comply with the same 
regulations, procedures, and processes that we expect of our 
defense primes, it is very difficult if it is two people in a 
garage. We work with that. I wish there was proportionality for 
my contracts, and we are working with that community, but most 
of the time they say we are only doing what Congress has 
directed we can accomplish.
    Mr. KNIGHT. To Mr. Williams, there are ways to cut down 
the, again, the bureaucratic mess, the over--extra paperwork, 
the things that we duplicate. Can you give me an idea of what 
you have done to kind of bring that process down a little bit?
    Mr. WILLIAMS. That is the process that I thought that we 
actually have not done a great job on. It has been a challenge 
and it is a hard area to focus on. We are bringing together the 
committees, I mean, all the agencies. We have working groups on 
contracting and grants, we are going to have a workshop at our 
conference in May where we are going to bring a lot of the 
government people from all across different agencies. It is a 
problem outside of just SBIR. As you mentioned, it is across 
the board. It is much bigger than us, so it is something we 
need to tackle, but most of the requirements state that SBIR 
cannot be different than another proposal or application or 
award. They have to follow the same processes, and what I have 
just seen in my 27 years, is the requirements of paper have 
gone up, to do more due diligence by those shops. I wish I had 
a better answer for you.
    Mr. KNIGHT. I guess I can ask the question of the whole 
panel then. Is there something that we should be looking at 
here in the Small Business Committee that can make it easier? I 
think that a lot of us look at small businesses and we talk 
about the issues that either happens at government here at this 
level or at the State level that makes small business do things 
on a weekly basis or on a monthly basis when bi-annually would 
be good enough to accomplish the mission. Is that something 
that we can look at here as a Committee as a whole?
    Mr. WILLIAMS. I think we have been tasked, and the 
reauthorization in the past has asked for studies to be done, 
potentially a study that would look at that but it would task 
again the heads of contracting grants to report back to you on 
what can be done, and potentially different for small 
businesses applying and not have to go through the same and do 
the same types of work that big businesses--and it is not just 
submitting the proposal, but as you mentioned, it is the 
auditing that happens, so DCAA and things like that. But I 
think getting those guys to kind of look at the problem might 
come up with some solutions because they would be the ones that 
would have to implement it.
    Mr. KNIGHT. I will not speak for the chair, but I think 
that part of the mission of this Committee is to make sure that 
small business can work efficiently and be accountable for what 
they do but also have the ability to make money and succeed and 
expand and do all the things that we want them to do here in 
this great country.
    With that, I yield back. Thank you, Mr. Chair.
    Chairman CHABOT. Thank you very much. The gentleman yields 
back.
    The gentleman from Massachusetts, Mr. Moulton, who is the 
ranking member of the Health and Technology Subcommittee is 
recognized for 5 minutes.
    Mr. MOULTON. Thank you very much, Mr. Chairman.
    I am one of the members who, like Mr. Knight, serve on 
Armed Services, and have been very pleased to see the Navy's 
robust implementation of their SBIR program. And Mr. Smith, I 
wanted to ask you a bit about the data summit idea that you 
mentioned in your testimony and you first proposed before the 
Senate. What exactly would that look like?
    Mr. SMITH. I think we get the appropriate communities 
together to ask some basic questions--what do you need? And how 
can we collect it and report it? I think the challenges is 
individually between here, SBA, DOD, even the Navy, we have 
each got a different question and need a different piece of 
data, where in acquisitions, we have never gone back and done a 
systems of systems approach to this challenge. I spend an 
incredible, inordinate amount of time reconciling data between 
multiple databases so I can get one answer to one question. 
That is part of it. I think it starts with possibly the 
scientists sitting down going, what are all the reports doing? 
Why are we doing them? Are we answering the question that we 
initially intended to answer?
    Mr. MOULTON. Is this summit something that could be covered 
in the 3 percent administrative budget? Could we pay for it 
through that?
    Mr. SMITH. Absolutely. Yes, sir.
    Mr. MOULTON. What do we need to do to move this forward? I 
mean, it seems like a reasonable idea. What do we need to sort 
of make this happen?
    Mr. SMITH. I am not quite sure on the language, but we can 
get back to you, sir, with that.
    Mr. WILLIAMS. Yeah, and SBA will take the lead to start 
working that with the agencies because we would want to do it 
cross agency and set something up and start to have a working 
group and work towards that. We will get back to you on that. 
We will take that lead.
    Mr. MOULTON. Great. What can we expect as a timeline on 
this? I mean, give us an idea of when we might see something 
that is actually coming together.
    Mr. WILLIAMS. Let us start to have meetings within the 
next, you know, 3 months and start to lay out how we do it. 
What I know about this in the past, because we did it at DOD, 
it is not that you can just say, ``Okay, we will do this, we 
will have a report, and then it is over.'' It is pretty much 
you start it and then you run it for years, but we need to get 
it started and figure out what are the issues that we need to 
gather, who is doing it, and kind of talk to our--and usually 
it is our data people that really have to get together. We will 
start in 3 months and then we will continue to give you updates 
on what is going on.
    Mr. MOULTON. Okay. Great. Thank you very much. Mr. 
Chairman, I yield back.
    Chairman CHABOT. Thank you very much. The gentleman yields 
back.
    The gentleman from New York, Mr. Gibson, is recognized for 
5 minutes.
    Mr. GIBSON. Well, thanks, Mr. Chairman. I appreciate the 
panelists here today. I think we are capturing some very good 
best practices we can circulate and look to continue to move 
towards excellence.
    Towards that end, Dr. Johnson, if you could talk for us, 
put for the record a little bit more detail on the Innovation 
Corps and how you have seen this flourish and how you worked 
the funding for it.
    Dr. JOHNSON. Thank you. I-Corps is a relatively young 
program. It was started in 2011 and we have created a national 
innovation network that includes seven nodes that are focused 
on delivering the curriculum that is part of the training that 
these teams receive. In addition, we have 51 sites that work 
collaboratively with those nodes. As we talked previously, four 
of those sites are at historically black colleges and 
universities, so we are trying to use this network to build 
relationships with underrepresented groups. And we have had 
within just the National Science Foundation, we have had over 
600 teams that have gone through the training at the national 
level, but I think that understates the training that is being 
delivered because it does not count the training that is going 
on at sites. We find that, for example, in Milwaukee, the site 
there that has delivered the training now to about 27 teams 
just in the first year or year and a half, and so this is an 
intensive training where the goal of the training is for the 
team to understand what they have. Do they have an idea that is 
worthy of commercialization? If so, what are the steps that 
they need to take? As I also mentioned, we are seeing increased 
numbers of proposals coming in to the SBIR program, and we are 
seeing increased success rates for that. We are growing the I-
Corps program. In fact, we have a solicitation out now for 
renewal and possible new nodes that would be created. We also 
have a new site solicitation out for renewal and creation of 
new sites so that we can grow this network. Our goal is that 
anyone, any entrepreneurially-oriented faculty member or 
students or others that want this training will have access to 
this training.
    Mr. GIBSON. Well, thank you. Likewise, Mr. Smith, how about 
any feedback you can share with us with regard to your 
guidebook, how well that has been received, and has that been 
shared with some of the other services as well?
    Mr. SMITH. Yes, sir. Actually, one of the services I think 
changed the cover and claimed it as their own. But we 
continually get evidence----
    Mr. GIBSON. Well, I am an Army guy, too, so hopefully it is 
not theirs.
    Mr. SMITH. It might be theirs. What we find is, just like 
everyone else, one of the philosophies I use with my team is 
make their jobs easier. We find the guidebook has made their 
job easier. Rather than finding that contract officer who does 
maybe one or two SBIR contracts a month and needs to go through 
the whole FAR to find the one chapter, the guidebook has helped 
put that in one central location for him.
    Mr. GIBSON. Excellent. In seriousness, that is among the 
ways we get more excellence in our formations, is really by 
just cross-leveling and sharing best practices, so I appreciate 
that.
    Related, you talked about what you saw as the utility of 
the 2011 reauthorization, and you talk about how that rather 
significantly, dramatically, reduced the award times, and the 
distribution thereof. Can you put a finer point on that, on how 
you used that 3 percent?
    Mr. SMITH. What we used for that 3 percent is we funded a 
contract center. I call it my focus contract center, where they 
have a team who essentially are experts in doing SBIR 
contracts. They do those every day. They have got their 
standardized templates and their formats. Instead of a 10-page 
cost proposal, they are able to do it with two, those kinds of 
things. That is where we have seen reductions, and that is 
actually one of the follow-ons we are doing is that team is now 
going to go out to my other contracting centers and provide 
training to them.
    Mr. GIBSON. Yeah. Thank you very much. I want to thank the 
whole panel for this. We do these hearings, of course, all the 
time. Oftentimes, we dilate on the problems and that is 
important, but it is also good to have a hearing such as this 
where we can capture many of the good things that are going on. 
We can fertilize that, cross-fertilize that drought. So thanks 
very much. I yield back, Mr. Chairman.
    Chairman CHABOT. Thank you. The gentleman yields back.
    I would like to now recognize the gentlelady from American 
Samoa, Ms. Radewagen, who is the chairman of the Subcommittee 
on Health and Technology. You are recognized for 5 minutes.
    Mrs. RADEWAGEN. Thank you, Mr. Chairman. I, too, would like 
to add my welcome to the panel. Thank you for being here today.
    My question is for Director Johnson. Director Williams; I 
am sorry. How are the R&D grants and contracts advertised to 
small businesses that conduct R&D?
    Mr. WILLIAMS. They are advertised through websites. We push 
them out through SBIR.gov, but each agency, does have their own 
website also where they list their topics. On SBIR.gov, you can 
go in and we pull all those topics available, so anyone can 
search at any time, find out what awards, what topics are out 
there, but also what awards have been done in the past, what 
agencies work on those, and then push to the agency sites.
    Mrs. RADEWAGEN. As a follow-up, as you are aware, the U.S. 
territories are geographically and technically isolated. Has 
there been any consideration for targeted outreach where R&D 
objectives, grants, or contracts directly or indirectly impact 
or benefit United States specific island territories?
    Mr. WILLIAMS. Our focus has been on increasing our ability 
to get to anywhere. Web-based tools, we have done an awful lot. 
It is not that we do not target--I do not think topics are 
targeted for specific regions of the country; they are targeted 
towards technology areas. What we try to do is actually provide 
training to areas so anyone can get the training they would 
need to submit proposals, understand the process, and things 
like that. DOE, for example, has done an excellent program, 
what they call their Phase Zero program that they funded with 
the 3 percent, and that program, actually, if you are a woman, 
a minority, or an underrepresented area, which your island 
would fall under, they will give special assistance in helping 
write the proposal. They provide additional assistance above 
and beyond. There are programs like that, and we have been 
trying to bring that in to our SBIR.gov. We have a training 
book, a train the trainer book that we give out, so we are 
trying to get more boots on the ground training locally. Even 
if we were to come in and leave right away, that really does 
not, we found, work as well as having someone established in 
those local areas. Through programs like FAST programs, anyone 
can submit proposals to get cost and funding to be a trainer 
and to get the word out.
    Mrs. RADEWAGEN. Thank you, Mr. Chairman. I yield back.
    Chairman CHABOT. Thank you. The gentlelady yields back.
    I now would like to recognize the gentleman from New York, 
Mr. Hanna, who is chairman of the Subcommittee on Contracting 
in the Workforce. You are recognized for 5 minutes.
    Mr. HANNA. Thank you, Chairman.
    Dr. Johnson, 15 percent of the overall applications are 
generally accepted. Of that 15 percent, which would reflect 100 
percent of those were accepted, you said that 32 percent are 
successful, 6 years, a million dollars, commercial. Can you 
talk to me about the other 68 percent and what that looks like 
in the real world?
    Dr. JOHNSON. We see--I guess there are a couple things that 
we see along the way. You are right with the numbers on the 
Phase I grantees, and then Phase I grantees obviously can apply 
for a Phase II grant. We see approximately 80 percent of those 
actually make that application. 20 percent are falling out 
after that Phase I process. In some cases they have gotten 
beyond the point where they need our help. In other cases, they 
have realized that the idea is not technically feasible and 
they will stop pursuit of that idea. There is some loss between 
the Phase I and then the transition to Phase II.
    I should point out, and I would be happy to share some of 
this information with you all if you would like. We have a data 
collection program that we created over a decade ago where we 
actually follow these grantees at a 3-year point, a 5-year 
point, and an 8-year point. We reach out to those grantees to 
find out, one, are they still in business? Two, are they 
generating jobs or are they generating revenue? Have they 
solved the problems that they needed to achieve 
commercialization? We gather as much information. That is 
through--it is a time-intensive process because it is through a 
personal phone call that we actually reach out and gather this 
information. To answer your question though, the reasons are 
all across the map. We see some teams that disintegrate. We see 
technology that just cannot be resolved. It is a number of 
things.
    Mr. HANNA. Naturally, you are accepting a certain amount of 
risk. You have to by definition. Are you comfortable with the 
matrix you used to do that? Should there be more failure? 
Should there be less failure?
    Dr. JOHNSON. Well, we feel like we are comfortable with the 
decision-making process because, as I mentioned earlier, we do 
bring in in the review process both technical experts and 
business experts. We are actually getting a very solid look at 
the proposal from the very beginning, and we do that again at 
Phase II, when we get ready to award. We do that again for the 
Phase IIB if we get ready to sponsor someone in that. We have a 
due diligence process that we believe is as thorough as it can 
be.
    Mr. HANNA. I would guess that some go way beyond a million 
dollars.
    Dr. JOHNSON. They do.
    Mr. HANNA. Using a simple percentage does not really give 
you the whole dynamic of the outcome or the success----
    Dr. JOHNSON. It does not.
    Mr. HANNA.--of the program overall. Can you talk about 
that, if it is even right?
    Dr. JOHNSON. You are exactly right because we do see, and 
in fact, we have the data that shows the total amount of 
revenue generated by that collection of companies, and it is 
hundreds of millions of dollars generated by it.
    Mr. HANNA. That might be a much better thing to look at 
than the number you have on your page.
    Dr. JOHNSON. Absolutely. I think that is an excellent 
point, and we do have that data. My goal was simply to 
demonstrate Phase IIB is actually doubling the success rate for 
that measure.
    Mr. HANNA. You did not do yourself any favor by doing it 
like you did it.
    Dr. JOHNSON. Okay.
    Mr. HANNA. I think. I mean, I could be wrong.
    Dr. JOHNSON. No, I appreciate that input.
    Mr. HANNA. Well, thank you very much. I yield back.
    Chairman CHABOT. Thank you. The gentleman yields back.
    I would now like to yield to the ranking member for a final 
question.
    Ms. VELAZQUEZ. Yes, thank you, Mr. Chairman.
    I cannot leave this hearing without stating for the record 
that I do have an issue with the fact that one of the statutory 
objectives of the SBA program is to increase the participation 
of minority and women-owned businesses in the R&D arena. I want 
to hear your commitment that you are going to be working with 
us in seeking solutions to this issue. We cannot deny the fact 
that the face of America is changing, and especially in the 
small business sector. By neglecting this, we are neglecting 
the ultimate goal of fostering innovation. I want to work with 
you throughout this process before we come to drafting final 
legislation on the reauthorization, but I do want to see this 
issue addressed. For NHA, the share has declined from a pick of 
3.5 percent in 2006 to less than 2 percent in 2014. That is 
unacceptable and we need to address it.
    Thank you, Mr. Chairman.
    Chairman CHABOT. Thank you. The gentlelady yields back.
    Ms. VELAZQUEZ. I just want to hear from each one of you.
    Oh, did you want to hear from them?
    Ms. VELAZQUEZ. Yes, please, that you are going to be 
working with us.
    Mr. SMITH. Absolutely, ma'am.
    Dr. PORTNOY. You have our commitment.
    Dr. JOHNSON. Yes, we are committed to it. In fact, I have 
asked one of my program directors to lead the effort on 
reaching underrepresented minorities for the division as well.
    Ms. VELAZQUEZ. And women.
    Dr. JOHNSON. Yes.
    Mr. WILLIAMS. Yes. I agree. I think we even need to go 
deeper and look at principal investigators, not just the 
ownership of the company but really who are the STEM people 
doing it and try to bring up, start there.
    Ms. VELAZQUEZ. Thank you.
    Chairman CHABOT. The chair would note that all the 
witnesses responded in the affirmative.
    I have one last question myself. As you can see, this is 
being broadcast here, this whole hearing, internally on our 
system here and actually on our website. Small businesses all 
over the country have access to this, not just today but 
whenever they would like to look at it. We are actually being 
viewed probably by tens of people all over the country.
    My question is this, for those consumers that may be 
watching today or sometime in the future, could any of you 
name--and you have named some of the products that have 
actually come out of this--could you name any products that a 
consumer out there might be able to relate to, either something 
they might purchase or something that might make their life a 
little bit better, get them someplace faster or more safely or 
whatever? So whoever has something they would like to--Dr. 
Portnoy?
    Dr. PORTNOY. So I think the easiest recognizable technology 
that the public will recognize is the Sonicare Toothbrush, 
which was funded by SBIR technology and by biomedical.
    Chairman CHABOT. You said the Sonicare----
    Dr. PORTNOY. Sonicare Toothbrush. The electronic vibrating 
toothbrush.
    Chairman CHABOT. Okay.
    Dr. PORTNOY. Funded under SBIR when it was a small company.
    Chairman CHABOT. Thank you. Anybody else?
    Mr. WILLIAMS. Qualcomm. Many people know of Qualcomm. 
Seventy percent of the chips that are in all your iPhones are 
developed by Qualcomm and that was started with SBIR. iRobot is 
another one that a lot of people have their Roombas around and 
all that was started with the DOD side, developed it for going 
into caves, and then they transitioned it to commercial sector.
    Chairman CHABOT. Very good. Doctor?
    Dr. JOHNSON. In addition to Qualcomm, obviously, Symantec 
is another example. It is a security company that was funded 
initially with SBIR funding. And so Qualcomm and Symantec are 
very large success stories.
    I want to mention a couple that are very recent emerging 
companies that I think people can relate to. There is a company 
called Flow Design Sonics, which has developed a water 
purification technology based on ultrasonic technology that can 
take dirty contaminated water in and produce clean, drinkable 
water out. It is a very useful technology and I think one that 
is going to have tremendous impact as we move forward.
    Chairman CHABOT. Okay. Mr. Smith, do you want to weigh in?
    Mr. SMITH. I bring up EMILY again. It is interesting that 
that technology is being used by fast water rescue teams in 
America, and throughout the world. I have an enjoyable job 
working with the best and brightest in the world. When you see 
an engineer that has created a technical solution and see the 
smile and the glow on their face, it only gets larger when you 
look them in the eye and say, ``I know you saved lives.''
    Chairman CHABOT. Thank you very much. We appreciate it.
    I would like to conclude by saying that the SBIR and STTR 
programs are good programs, but we can always do better as the 
ranking member indicated in that particular area, and we can do 
better, I think, in other areas as well. We will take the 
suggestions that we have heard today and by the members here 
and their questions that we have heard the responses and the 
answers from you and try to incorporate that information into 
the reauthorization legislation that we will be putting 
together in the very near future.
    We want to thank you all for your testimony. I ask 
unanimous consent that members have 5 legislative days to 
submit statements and supporting materials for the record. If 
there is no further business to come before the Committee, we 
are adjourned. Thank you.
    [Whereupon, at 12:22 p.m., the Committee was adjourned.]
                            A P P E N D I X


[GRAPHIC] [TIFF OMITTED] T9446.001

    Chairman Chabot, Ranking Member Velazquez and distinguished 
members of the committee, thank you for inviting me here today 
to discuss the Small Business Innovation Research and Small 
Business Technology Transfer programs affectionately known as 
America's Seed Fund.

    Last month, SBA Administrator, Maria Contreras-Sweet 
discussed the ``State of Entrepreneurship'' at NASDAQ's 
Headquarters in Times Square. This unprecedented opportunity 
gave SBA a wonderful platform to explain the importance of 
small businesses to the American economy. The Administrator 
highlighted the great value of the SBIR program and how it 
harnesses America's ingenuity to solve big issues. The SBIR 
program drives innovation in areas ranging from national 
security to public health to food and space exploration. In the 
financial tech capital of the world, SBIR was recognized as the 
institution which creates and provides opportunity, through 
initial seed investment, to tens of thousands of small high-
tech growth firms.

    And NASDAQ is the proper place to begin a discussion of the 
SBIR because it represents the ultimate aims of the program--
business growth innovation and job creation. Today we are going 
to speak a lot about oversight, reporting and compliance but we 
must not miss the point the return on investment from SBIR is 
truly astounding. The combined market caps of just two SBIR 
funded companies, Qualcomm & Biogen, is $120 Billion, triple 
what American taxpayers have invested over the lifetime of 
these SBIR programs. And our next generation of companies that 
got started with SBIR funds are developing game-changing 
technologies, like Mango Materials, headed by a female PhD from 
Stanford, a company tackling waste-reduction through a novel 
process of creating bio-plastics from methane waste and Made in 
Space, a company pioneering the use of 3-D printing on the 
International Space Station to support extended space 
exploration.

    Working to better organize and extend the impact of these 
programs is a privilege for me. Many of you know me from the 
rigor, success, and discipline I brought to the Navy SBIR 
program. A little over a year ago, I was asked by SBA to lead 
the federal wide policy and programmatic oversight for the SBIR 
and STTR programs. I accepted that position and now make it my 
personal mission to ensure we deliver a quality product to all 
our stakeholders.

    SBA works very closely with Agencies' Program Managers and 
external stakeholders to ensure that the intent of Congress is 
carried out in the operation of the programs. It is critical to 
remember that although there is one SBIR program it is operated 
11 different ways depending on the focus of each agency's 
mission directives and goals.

    The 11 agencies that participate in programs have 
collectively awarded over 152,000 awards totaling over $40 
billion dollars to America's small businesses. Since 2012's 
reauthorization, the SBIR/STTR programs have annually provided 
over $2.5 billion dollars of seed-funding, directly into the 
hands of small businesses nationwide.

    Thanks to this committee, the programs were reauthorized in 
December of 2011. Since reauthorization, SBA successfully 
issued 5 major interagency policy committee reports on 
outreach, commercialization, award size flexibility, evaluation 
frameworks, and SBIR.gov public and Government databases. We 
implemented, with agency support, the 68 legislative changes 
directed by the 2011 reauthorization. We commenced the 
modernization, build-out, and maintenance of our SBIR.gov 
business intelligence platform; coordinate and lead a highly 
successful outreach campaign, hitting 22 states across the 
country in 2015 via our SBIR Road Tours, Regional Summits, and 
National Conferences. We have accomplished a great deal with 
the limited budget and personnel resources allocated. But there 
is more work to be done.

    This committee asked the speakers to discuss potential 
improvements to boost commercialization, improve data 
collection and reporting while limiting paperwork burdens. I 
have some summary thoughts on each of these.

    Commercialization was improved by the 2011 reauthorization 
but more should be done. Firms are severely limited in using 
SBIR funds to support activities that help commercialize the 
firms' products and services, like market assessments, patents, 
and scale up. Agencies are still struggling to report, as 
directed, Phase III award activity or any goals and incentives 
that they have put in place to increase Phase III's. And we 
need to look at ways for agencies, especially the DOD, to make 
sure funds are available to pay for the needed Test and 
Evaluation, or technology maturation phase, of SBIR Phase II 
projects.

    On the data collection, we are much better off than we were 
in 2011. SBA and the agencies have all worked hard to implement 
the many new data fields that Congress requested collect. I 
strongly encourage all of you to visit SBIR.Gov to see the 
amount of data that is now available. But this is still work in 
progress and continues to require funding and time to get to 
where we want to be.

    Limiting paper work burdens continues to be a challenge 
where I don't believe we have made much progress. While this 
was a goal of the reauthorization, so too were the goals of 
increasing the data collected and tools to help protect against 
fraud waste and abuse. A big challenge here is that most 
agencies still require small businesses to apply using the same 
processes that their major Universities and large businesses 
do. There are some organizations, like NSF with its FastLane 
site and the DOD, that are building tools that reduce the 
efforts for both the firm and the agency. But more can and 
should be done to help standardize the proposal template and 
submission process. I also think we need to focus on the gap 
between proposal submission to award, especially between Phase 
I and II.

    As SBA's Director of Innovation and Technology, I will 
continue to work closely with our sister agencies to make sure 
the SBIR/STTR programs are the top priorities across the 
federal government. I will hold agencies responsible for the 
allocations required by statute. And I will continue to work 
with you to improve these programs. They are true gems, and we 
must make sure our small businesses know about these 
opportunities.
[GRAPHIC] [TIFF OMITTED] T9446.002

    Mr. Chairman and Members of the Committee, thank you for 
this opportunity to testify regarding the Small Business 
Innovation Research (SBIR) and Small Business Technology 
Transfer (STTR) programs at the National Science Foundation 
(NSF). My name is Barry Johnson, and I am Director of the 
Division of Industrial Innovation and Partnerships in the NSF 
Directorate for Engineering. In this role, I have oversight 
responsibility for the SBIR and STTR programs at NSF. For ease 
of communication I will use the term ``SBIR program'' to refer 
to the collective SBIR and STTR programs.

    The SBIR program is an integral part of the NSF strategy to 
stimulate innovation and address societal needs through the 
commercialization of the results of research. We fund small 
businesses at very early stages, when the technology risk is 
high and before the private sector is normally willing to 
invest. Since NSF is not the ultimate customer of the 
innovation stimulated by the SBIR program, the NSF SBIR 
research topics are oriented to the needs of the marketplace 
and the nation as a whole.

    All companies that receive NSF SBIR funding first receive 
Phase I funding. Phase I funding can be up to $225,000 for a 
period of performance ranging between six and 12 months. All 
Phase I grantees are eligible to apply for Phase II awards to 
conduct expanded research efforts to complete technical 
milestones as a pre-requisite for further commercialization. 
Phase II award size can be up to $750,000 for a period of up to 
two years. Proposals for Phase II funding require a 
commercialization plan in addition to a technical research 
plan. Thus, when a business receives Phase II funding, it 
already has a strategy in place for commercialization of the 
technology.

    SBIR Phase IIB

    In 1998, NSF SBIR introduced a new supplemental program 
called Phase IIB as a platform to stimulate NSF-funded active 
Phase II grantees to attract private sector funding for further 
technology commercialization. The Phase IIB proposal is 
submitted while the company is conducting the Phase II 
research. With Phase II research underway, the small business 
is better positioned to attract investors because most of the 
early stage technology risk has already been addressed with NSF 
funding.

    The Phase IIB program requires that third party commitments 
be double the level of supplemental funding from NSF, up to a 
maximum of $500,000 from NSF. The Phase IIB supplement was 
initiated to further `fill the gap' between the funding from an 
NSF Phase II grant and the funding ultimately required to 
achieve successful commercialization. The supplemental funding 
from NSF ranges between $50,000 and $500,000. Third party 
investors include both public and private sectors. For 
supplements over $250,000, the small business must participate 
in a reverse site visit at NSF with its investor.

    Additional Support

    In addition to providing funding, we also assist our 
awardees by providing them with an educational component based 
in part on the NSF Innovation Corps (I-Corps) program that 
helps entrepreneurs and their small businesses understand 
market needs and customers, thus increasing their chances of 
successfully commercializing new technologies. The NSF SBIR 
program is also staffed with a team of program officers with 
strong technical backgrounds in the areas supported by the 
program and with business experience in large and small 
organizations. The SBIR program officers generate the topics, 
review the proposals, manage the awards, and provide 
significant mentoring for the grantees.

    Commercialization Assessment

    NSF monitors the commercial outcome of our Phase II 
awardees and has found that 32% of the NSF SBIR grantees were 
fully successful in that they have at least $1 million in 
revenue 6 years after completing the NSF SBIR Phase II award. 
Companies note strong intellectual property positions, strong 
academic collaborations, and strong ties to market leaders as 
major reasons for success. The success rate for companies 
receiving Phase IIB awards using this same measure was 65%. The 
impact of the Phase IIB program on success rates is thus very 
significant. The National Academies, in their recent report on 
``SBIR at the National Science Foundation,'' found similar 
commercialization impacts of the NSF Phase IIB program.

    Mr. Chairman, this concludes my testimony. On behalf of the 
National Science Foundation, the SBIR program and our awardees, 
I want to thank you for this opportunity to highlight a program 
that provides small businesses with the means to keep America 
on the forefront of innovation. I would be pleased to provide 
any additional information that would be useful to you.
                DEPARTMENT OF HEALTH AND HUMAN SERVICES


                     NATIONAL INSTITUTES OF HEALTH


Commercializing on Innovation: Reauthorizing the Small Business 
  Innovation Research and Small Business Technology Transfer 
                            Programs

                      Testimony before the

                 House Small Business Committee

                     Matthew Portnoy, Ph.D.

             Director, Division of Special Programs

                 NIH SBIR/STTR Program Manager

                 Office of Extramural Programs

                 Office of Extramural Research

                     Office of the Director

                 National Institutes of Health

                         March 2, 2016
    Good afternoon, Chairman Chabot, Ranking Member Velazquez 
and Members of the Committee. My name is Dr. Matthew Portnoy 
and I am the Director for the Division of Special Programs 
within the Office of the Director's Office of Extramural 
Research at the National Institutes of Health (NIH), and the 
Coordinator for the Department of Health and Human Services 
(HHS) SBIR and STTR Programs. Thank you for the opportunity to 
discuss the Small Business Innovation Research (SBIR) and Small 
Business Technology Transfer (STTR) programs at the NIH, and 
the role they play in stimulating innovation and our economy. I 
would like to note that my remarks will primarily focus on NIH 
because our agency represents 98 percent of the Department's 
programs, however my office coordinates closely with the 
Centers for Disease and Control and Prevention (CDC), the Food 
and Drug Administration (FDA), Administration for Community 
Living (ACL), and the Administration for Children and Families 
(ACF), our sister HHS agencies that also fund SBIR and STTR 
programs. Among the 11 Federal departments and agencies that 
participate in these programs, the NIH is the second largest 
funder, and the largest Federal supporter of biomedical 
research. The SBIR/STTR programs continue to be critical to 
feeding the innovation pipeline that promises to deliver the 
medical advances of tomorrow and have complemented NIH's 
mission to advance science while bringing new health care 
solutions to the public.

    Importance of the SBIR/STTR Program at NIH: Igniting 
Imaginations and Spurring New Discoveries

    The NIH SBIR/STTR programs are ideally suited for creating 
research opportunities for U.S. small businesses to stimulate 
technological innovation. Part of a complex innovation 
ecosystem, these programs provide dedicated funding for U.S. 
small businesses to conduct early-stage research and 
development (R&D) to explore the feasibility of innovative 
ideas that may eventually result in products or services that 
will lead to better health for everyone. The NIH SBIR/STTR 
programs are one means by which NIH Institutes and Centers 
(ICs) accomplish their R&D objectives. A key feature that sets 
SBIR/STTR apart from other NIH programs is a focus on 
commercialization of the results of research. Thus, the 
programs serve to supplement the basic and applied research 
programs of NIH.

    Types of research NIH supports under SBIR/STTR

    Examples of the types of research that NIH supports through 
the SBIR/STTR programs include, but are not limited to: drug 
discovery, drug and pharmaceutical development, medical 
devices, biosensors, nanotechnologies, proteomics, imaging, 
bioengineering, behavioral research, health services, and other 
technologies that enhance health, lengthen life, and reduce 
illness and disability. Researcher-initiated ideas are the 
cornerstone of the NIH research portfolio, including projects 
supported by the SBIR/STTR program. Examples of successful NIH 
SBIR-funded technology includes the Lift Labs' 
LiftwareTM that creates stabilizing technologies to 
help people with Essential Tremors and Parkinson's disease and 
Senestech, which has technology to manage rodent populations 
using a non-toxic approach that limits reproduction.

    NIH SBIR/STTR Program Reauthorizing Implementation Overview

    I am pleased to share with you today that the 
implementation of all of the changes included in the SBIR/STTR 
Reauthorization Act of 2011 is complete. I will now provide you 
with a brief update on our work to date.

    SBIR/STTR Funding: In accordance with law, the NIH 
increased its set-aside for the SBIR and STTR programs to 3.0 
and 0.45 percent, respectively, of its extramural research and 
development budget in Fiscal Year (FY) 2016. Since the 
reauthorization, the overall budget for the programs has 
increased from $680 million in FY 2011 (pre-reauthorization) to 
the current FY 2016 minimum set-aside of $877 million. That is 
an increase of nearly $200 million that is available to small 
businesses working in many different technology areas across 
the country. Throughout, NIH and HHS continue to meet and 
exceed the required set-asides each year, as found by annual 
GAO reports. In FY 2015, the success rates of our both our SBIR 
and STTR grant programs, representing 90 percent of the 
portfolio, range from 15-16 percent for Phase I and 30-35 
percent for Phase II. This included funding more than 1,000 new 
awards, and is in line with historical rates as well as with 
rates from other agencies. Our first year of the Direct Phase 
II SBIR pilot was FY 2015 and allows applicants to apply and 
receive a Phase II, if they have demonstrated they have done 
the Phase I equivalent with other funds. In FY 2015, we had a 
success rate of 19 percent and made 65 Direct Phase II awards.

    Increased Outreach Efforts: We have bolstered and 
diversified our SBIR/STTR outreach efforts the past several 
years with the intention of further diversifying the SBIR/STTR 
programs. As required under the reauthorization, we continue to 
partner with the NIH Institutional Development Award (IDeA) 
program \1\ to reach underserved small businesses in IDeA 
states, and have increased outreach to women-owned and socially 
and economically disadvantaged businesses. During FYs 2013-
2015, we have reached over 24,400 individuals from all 50 
states and the District of Columbia and Puerto Rico. This 
includes outreach to more than 940 women-owned small businesses 
(WOSB) and 650 socially and economically disadvantaged small 
businesses (SDB), as well as efforts targeting all 23 IDeA 
states and Puerto Rico. Our outreach efforts include: revamping 
our website and using social media; participating in the SBA 
Road Tour; and engaging state-based economic development 
centers and professional organizations that reach women and 
minority entrepreneurs. Through these and other efforts, we 
anticipate increased applications from these groups, further 
diversifying the SBIR/STTR Programs.
---------------------------------------------------------------------------
    \1\ The Institutional Development Award (IDeA) program broadens the 
geographic distribution of NIH funding for biomedical and behavioral 
research. See more at: http://www.nigms.nih.gov/Training/IDeA/Pages/
default.aspx.

    SBIR Direct Phase II Pilot, Commercialization Readiness 
Pilot Program and Phase 0 Proof of Concept Centers: These three 
new provisions from the 2011 Reauthorization Act have been 
successfully implemented. NIH issued its first Direct Phase II 
SBIR solicitation in 2014 and made our first awards in FY 2015. 
Other Direct Phase II solicitations have since been issued. The 
community has responded positively to these solicitations and 
success rates, as predicted, track along with Phase I. NIH and 
CDC recently launched their Commercialization Readiness Pilot 
Program (CRP) in the fall of 2015. The CRP program allows us to 
make follow-on awards to Phase II small business for additional 
technical assistance or R&D to be done was they work towards 
commercialization. A pair of CRP solicitations was issued and 
we just had our first receipt date for applications in January 
2016 with awards to be made this summer.\2\ While the results 
of the pilot will take some time to determine, based on the 
number of applications received, there is demand for this new 
program from the small business community. NIH has also 
implemented the STTR Phase 0 Proof of Concept Centers provision 
through the NIH Research Evaluation and Commercialization Hubs 
(REACH) program.\3\ NIH issued three awards in 2015 to the 
University of Louisville (Louisville, KY), the University of 
Minnesota, and the Long Island Bioscience Hub (a consortium of 
Stony Brook University, Cold Spring Harbor Labs, Brookhaven 
National Labs, and Feinstein Institute for Medical Research at 
Northwell Health Systems). A program Kick-Off meeting was held 
in April 2015 to share best practices learned from the NIH 
Centers for Accelerated Innovations (NCAI), a similar program 
funded by the NIH National Heart, Lung, and Blood Institute and 
the National Institute on Drug Addiction and co-funded by the 
Phase 0 authority. The REACH Hubs and NCAI Centers are working 
together to create a nationwide proof-of-concept network of six 
hubs/centers comprised of 20 high impact research institutions. 
The first major accomplishment of this new network is a 
preliminary agreement with several pharmaceutical company 
partners to facilitate technology transfer and industry 
engagement.
---------------------------------------------------------------------------
    \2\ See https://sbir.nih.gov/engage/news#dec4

    \3\ See http://grants.nih.gov/grants/guide/rfa-files/RFA-OD-14-
005.html.

    Venture-backed Small Businesses: In 2013 and 2014, NIH and 
CDC respectively exercised their authority to allow small 
businesses that are majority owned by multiple venture capital 
companies, hedge funds and private equity firms to apply for 
SBIR funding. We received the first applications in late FY 
2013 and have made the first awards in FY 2014. The demand for 
this flexibility is quite low (less than 1 percent of SBIR 
applications and awards) and we will continue to monitor it 
---------------------------------------------------------------------------
closely over time.

    Shorten Time to Award: We are strongly committed to 
shortening the time from application receipt to award. We have 
implemented a variety of measures in the past year in all 
aspects of our receipt to award cycle designed to shorten this 
time period and are adjusting these as needed. In FY 2015, 
NIH's average time from receipt to notice of intent to award 
was less than 200 days, well below the 12 month requirement, 
and we anticipate this number to fall over time. We are working 
to be responsive to this important small business need, while 
at the same time maintaining the meritorious nature of our 
mandated two-tiered peer review process and meeting 
congressional expectations.

    Administrative Funding Pilot: HHS is grateful for the 
financial and human resources support provided through the 
administrative fund pilot authority to enhance our management 
of the SBIR/STTR programs in new and better ways and for the 
recent extension of this authority through the end of FY 2017. 
These funds have been critical so far in a number of areas 
across the entire Department. In FYs 2013-2015, HHS has spent 
$7M, $5M, and $10M respectively representing 0.9 to 1.5% of the 
HHS SBIR set-aside per year towards a variety of activities 
authorized by SBA and fulfilling congressional intent with 
these funds. The Administrative Funding Pilot enabled us to 
increase outreach efforts mentioned above, both in person and 
by webinar, including participation and co-funding of the SBA 
Road Tour; reaching small businesses in under-served states and 
women- and minority-owned businesses; hiring new outreach 
staff; streamlining our award cycles, including hiring new 
staff; increasing support for commercialization in several 
areas; conducting program analysis for increased efficiency; 
ensuring accuracy and timeliness of meeting reporting 
requirements; and providing support for new programs to name a 
few. These activities would not have been possible without the 
additional funds under the pilot and would likely need to be 
severely curtailed or eliminated without extended or permanent 
funding.

    Program Flexibility is Key: One Size Does Not Fit All

    I would stress that HHS attributes the success and 
effectiveness of its programs to several factors, the most 
significant of which is a flexible and proactive approach that 
adapts to the changing nature of biomedical and behavioral 
research while maintaining a highly competitive and effective 
program.

    Examples of program flexibility include the ability to 
propose research projects in fields that have the most 
biomedical potential; the ability for an applicant to resubmit 
an unfunded application; and the abi8lity to fund Phase I and 
Phase II awards at appropriate budgets that may exceed the 
established guidelines if the science proposed warrants such an 
exception to ensure successful outcomes. The NIH SBIR Phase II 
average award size in FY 2014 was $1.3 million.

    Biomedical research presents a unique set of challenges 
that require appropriate resources to commercialize the next 
set of discoveries.

    In addition to the SBIR/STTR awards and the above mentioned 
newly implemented programs, HHS also has a suite of funding gap 
and technical assistance programs to help companies accelerate 
their projects forward into the next stage of R&D development 
and help them navigate the period between discovery and 
commercialization. This includes our Niche Assessment Program, 
Commercialization Accelerator Program, and a life-science 
focused pilot of the National Science Foundation's (NSF) iCorps 
program. Thus we help companies grow into sustainable 
businesses and leverage our investments in the long run.

    Conclusion

    In conclusion, I want to emphasize that flexibility is 
critical at a time when science is changing rapidly, becoming 
more complex, more interdisciplinary, and resource intensive. 
The SBIR and STTR programs seek to fund the most scientifically 
promising projects for which private and public funds are not 
traditionally available. Also, as a responsible steward of 
taxpayers' dollars, we strive to leverage HHS's portfolio 
across the biomedical enterprise.

    This concludes my statement. Thank you for your attention 
and I look forward to answering any questions you may have.
                            TESTIMONY BEFORE


                 THE HOUSE COMMITTEE ON SMALL BUSINESS


                        WEDNESDAY, MARCH 2 2016


                                  -by-


                            ROBERT L. SMITH


                    DIRECTOR, DEPARTMENT OF THE NAVY


               SMALL BUSINESS INNOVATION RESEARCH (SBIR)


                                  AND


           SMALL BUSINESS TECHNOLOGY TRANSFER (STTR) PROGRAM

    Chairman Chabot, Ranking Member Velazquez, and 
distinguished members of the committee, thank you for the 
opportunity to appear before you today to discuss Small 
Business Innovation Research (SBIR) and Small Business 
Technology Transfer (STTR). The Department of the Navy greatly 
values our SBIR/STTR program, because we are taking a great 
program and making it better by improving the business of the 
science. Small business and industry value our program because 
of continuous outreach to create new business and science 
opportunities.

    Through SBIR/STTR, American small businesses throughout 
your States have proven over and again their ability to provide 
lean, agile and innovative solutions to warfighter 
requirements--to help our Service deal with the big challenges 
of its defense and humanitarian missions. As Mr. Sean Stackley, 
Assistant Secretary of the Navy for Research, Development and 
Acquisition (ASN RDA) said, ``Small Business and a competitive, 
healthy Small Business industrial base are vital to the long 
term success and affordability of the Department as well as to 
our national security. The evidence is overwhelming that where 
affordability is paramount, a strategy that includes Small 
Business creates more affordable outcomes and promotes 
innovation and technical advancement.''

    Two examples of outstanding Navy SBIR/STTR contributions to 
our Military and our Nations are EMILY and Automated Celestial 
Navigation:

           The Emergency Integrated Lifesaving 
        Lanyard--called EMILY--is a robotic lifeguard deployed 
        world-wide by Hydronalix, a rural Arizona company. 
        Several of EMILY's technologies derive from a 1991 
        Office of Naval Research STTR project to track whale 
        migration. The tracking system, reconfigured as the 
        Silver Fox Unmanned Air Vehicle (UAV), was deployed in 
        2007 to provide convoy protection to Marines in Iraq, 
        saving lives. The same basic technology package, 
        reconfigured as EMILY, is supporting first responders 
        throughout the U.S. and other nations, and saving lives 
        today in the Mediterranean Sea refugee crisis.

           Trex Enterprises' Automated Celestial 
        Navigation (ASN) system provides a solution in GPS-
        denied environments through a fully automated star 
        tracker for imaging individual stars both day and night 
        to enhance navigation capability. Initially focused on 
        Navy challenges, ASN attracted attention across the 
        government; the result being a fellow agency ordering 
        15 systems, with applications in crime fighting and 
        drug interdiction.

    Over the last six years, using its non-SBIR funds, the Navy 
has invested an average of over $500 million per year in SBIR/
STTR technologies. This investment, we believe, leads the 
Department of Defense and the federal government.

    There are four primary factors that have made the Navy's 
SBIR/STTR program successful:

           Culture--our Naval acquisition community 
        considers SBIR/STTR part of the solution for delivering 
        quality innovation to our warfighters, quickly and 
        cost-effectively.

           Team--with an emphasis on delivering 
        solutions to warfighters, our dedicated professionals 
        make continual improvements to small business 
        performance through our proven SBIR/STTR Transition 
        Program and its annual Forum. These events further 
        partnering with industry and government, for even the 
        newest small firms.

           Outreach--through SBA's SBIR ``Road Tours'', 
        SBIR conferences, and our own Command visits across the 
        US, we aggressively attract new entrepreneurs to the 
        Naval Research Enterprise.

           Leadership--Secretary Stackley (ASN RDA) and 
        Rear Admiral Mathias Winter, Chief of Naval Research, 
        provide continuous advocacy for SBIR/STTR, as well as 
        guidance to our acquisition community about SBIR/STTR 
        engagement. Moreover, the Department of Navy guidance 
        is aligned with the Department of Defense Better Buying 
        Power 3.0.

    The Navy's SBIR/STTR programs are a data-driven program 
with meaningful metrics to mature the business of the science, 
increase technology transition, and improve commercialization 
outcomes. Looking at FY2015-FY2016 our SBIR/STTR program can be 
measured in four critical areas: Phase I awards; awards to new 
firms; reducing award delays; and Phase III investment.

           Phase I awards--Phase I awards rebounded 
        after sequestration budgets to over 400 awards in 
        FY2014, and continued in FY2015 at the same level.

           Awards made to new firms--despite the 
        intense competition for SBIR/STTR awards the Navy 
        averaged 22% of awards to first-tine winners in every 
        solicitation since 2010--due, we believe, to improved 
        outreach.

           Reducing award delays--an Office of Naval 
        Research pilot on focused contracting--funded with the 
        ``3% administration'' monies provided in 2011 SBIR 
        reauthorization--reduced Phase II award time from 112 
        months to 4.7 months and reduced award delay from 7.4 
        months to 0.9 months.

           Phase III investment--$383 million in non-
        SBIR/STTR dollars were invested in 142 projects in 
        FY2015, for an average of $2.7 million per project to 
        mature innovative technologies needed by Navy to 
        accomplish its defense and humanitarian missions.

    Performance, as mentioned above, led former Under Secretary 
of Defense for Acquisition, Logistics and Technology, Jacques 
Gansler to tell the Senate Armed Services Committee recently 
that SBIR/STTR should be made a permanent program. The 
Department of the Navy continues to week improvements in our 
program to seek a more diverse vendor base, increase small 
business integration into Navy business, and leverage small 
business advances for Navy requirements. I look forward to 
working with you and your staff regarding the importance of 
SBIR/STTR authorities.
    March 3, 2016

    VIA E-MAIL

    Mr. John Williams
    Director
    Innovation and Technology
    Office of Investment and Innovation
    United States Small Business Administration
    409 3rd Street SW
    Washington, DC 20416

    Dear Mr. Williams:

    In order to have a complete record for the hearing titled, 
``Commercializing on Innovation: Reauthorizing the Small 
Business Innovation Research and Small Business Technology 
Transfer Programs'' held on March 2, 2016, the following 
question is being submitted for your response. Please provide 
your response by March 17, 2016 to the attention of the 
Committee's clerk, Delia Barr, at [email protected] for 
inclusion in the hearing record.

          It appears that the Federal Agencies make decisions 
        regarding the exemption of individual agencies from the 
        SBIR program without regard to any protocol that 
        requires SBA oversight. The FAA is exempt from the DOT 
        program because of an amendment to the DOT FY 1996 
        Appropriations Bill. DOD exempts Intelligence and Navy 
        Nuclear Reactor programs based on other statutory 
        authorities.

          Should the Committee amend the SBIR statute to 
        include the proper authorities for SBA to provide 
        guidance and oversight on Federal agency exemptions 
        from the SBIR program?

    Thank you for your participation in the hearing and your 
timely reply.

    Sincerely,

    Steve Chabot
    Chairman

    Response to Question from Hon. Steve Chabot

    Exemptions from SBIR require Congressional action. SBA does 
not support exemptions in the program as it makes it 
challenging for SBA and GAO determine if an agency is setting 
aside the proper amount. Once an exemption is passed into law 
there is little SBA can do about it and thus SBA does not 
believe amending the SBIR statute to include authorities for 
SBA to provide guidance and oversight on Federal agency 
exemptions from the SBIR program will help.

                                 [all]