[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
OVERVIEW OF THE SMALL BUSINESS INNOVATION
RESEARCH AND SMALL BUSINESS TECHNOLOGY
TRANSFER PROGRAMS
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MAY 13, 2021
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[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-012
Available via the GPO Website: www.govinfo.gov
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U.S. GOVERNMENT PUBLISHING OFFICE
44-564 WASHINGTON : 2021
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
TROY CARTER, Louisiana
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
Melissa Jung, Majority Staff Director
Ellen Harrington, Majority Deputy Staff Director
David Planning, Staff Director
C O N T E N T S
OPENING STATEMENTS
Hon. Nydia Velazquez............................................. 1
Hon. Blaine Luetkemeyer.......................................... 3
WITNESSES
Dr. Joyce Tung, Vice President of Research, 23andMe, Inc.,
Sunnyvale, CA.................................................. 5
Ms. Pat Keady, Founder, CEO, and President, Aerosol Devices Inc.,
Fort Collins, CO............................................... 6
Ms. Rebecca Todd, Innovation Consultant, Arkansas Small Business
and Technology Development Center, Little Rock, AR............. 8
Mr. Jere Glover, Executive Director, Small Business Technology
Council, Washington, DC........................................ 9
APPENDIX
Prepared Statements:
Dr. Joyce Tung, Vice President of Research, 23andMe, Inc.,
Sunnyvale, CA.............................................. 34
Ms. Pat Keady, Founder, CEO, and President, Aerosol Devices
Inc., Fort Collins, CO..................................... 43
Ms. Rebecca Todd, Innovation Consultant, Arkansas Small
Business and Technology Development Center, Little Rock, AR 45
Mr. Jere Glover, Executive Director, Small Business
Technology Council, Washington, DC......................... 55
Questions and Answers for the Record:
Question from Hon. Leutkemeyer to Mr. Jere Glover and
Response by Mr. Jere Glover................................ 84
Question from Hon. Williams to Mr. Jere Glover and Response
by Mr. Jere Glover......................................... 85
Question from Hon. Davids to Mr. Jere Glover and Response by
Mr. Jere Glover............................................ 86
Question from Hon. Meuser to Mr. Jere Glover and Response by
Mr. Jere Glover............................................ 87
Question from Hon. Newman to Mr. Jere Glover and Response by
Mr. Jere Glover............................................ 88
Additional Material for the Record:
New England Innovation Alliance (NEIA)....................... 89
OVERVIEW OF THE SMALL BUSINESS
INNOVATION RESEARCH AND SMALL
BUSINESS TECHNOLOGY TRANSFER
PROGRAMS
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THURSDAY, MAY 13, 2021
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. Nydia Velazquez
[chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Crow, Davids, Mfume,
Phillips, Newman, Bourdeaux, Delgado, Houlahan, Mr. Kim of New
Jersey, Craig, Luetkemeyer, Williams, Stauber, Meuser, Tenney,
Garbarino, Ms. Young Kim of California, Van Duyne, Salazar, and
Fitzerald.
Also Present: Representative Schneider.
Chairwoman VELAZQUEZ. Good morning. I call this hearing to
order.
Without objection, the Chair is authorized to declare a
recess at any time.
Let me begin by saying that standing House and Committee
rules and practice will continue to apply during hybrid
proceedings. All Members are reminded that they are expected to
adhere to these standing rules including decorum.
House regulations require Members to be visible through a
video connection throughout the proceeding, so please keep your
cameras on. Also, please remember to remain muted until you are
recognized to minimize background noise. If you participate in
another proceeding, please exit this one and log back in later.
In the event a Member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available Member of the same party and I
will recognize that Member at the next appropriate time slot
provided they have returned to the proceeding.
For those Members physically present in the Committee room
today, we will also be following the health and safety
guidelines issued by the attending physician. That includes
social distancing and especially the use of masks. Members and
staff are expected to wear masks while in the hearing. With
that said, Members will be allowed to briefly remove their
masks when recognized by the Chair for their statement and
questions. Otherwise, masks are expected to remain in place. I
thank you in advance for your commitment for a safe environment
for all here today.
During my tenure on this Committee, I have seen countless
examples of how small businesses drive innovation. Technology
has changed rapidly over the years thanks to pioneering
entrepreneurs leading the way. Congress has facilitated this
innovation through investments in federally funded research and
development, also known as R&D. As a result, federally funded
R&D has produced countless inventions and discoveries that have
changed our country for the better. From Doppler radar to
computers to the first wind energy turbines, government-funded
research has a rich legacy of helping launch ground-breaking
inventions. For innovative small businesses, it can often be a
struggle to access early funding critical to building a new
product.
To reduce risks of investment in small businesses and
encourage entrepreneurs to commercialize federal R&D
innovations, SBA launched the Small Business Innovation
Research (SBIR) program in 1982. Ten years later, the agency
launched the Small Business Technology Transfer (STTR) program
to stimulate partnerships between small businesses and
nonprofit research institutions. These programs are funded
through federal set-asides of government agencies, and
development funds. SBIR and STTR have an impact on small
businesses across a variety of different sectors every year. In
FISCAL YEAR 2020, agencies contributed $454 million for 1,030
awards to 744 small businesses. Not only do these figures
represent an investment in our nation's small firms, but they
are also funding our country's future.
Over the course of the last 3 decades, SBIR/STTR have
funded small businesses that are now economic powerhouses. The
programs provided companies like 23andMe, Qualcomm, Semantic,
and Da Vinci Surgical Systems with the early funding they
needed to develop new technologies and build their enterprises
into what they are today. These programs also have the
potential to address persistent barriers that hold back women
and people of color operating in the STEM fields. Minorities
often have a harder time accessing seed capital to pursue the
creation of new technologies and this program helps bridge that
gap.
Women hold less than 20 percent of U.S. tech jobs and only
5 percent are in leadership positions at technology companies.
According to a recent survey by Pugh Research, Asian Americans
hold 13 percent of STEM jobs while African Americans hold 9
percent and Latinos hold 8 percent. These numbers are
staggering and show we have a long way to go. And I may add,
increasing the number of women and minorities who participate
in the SBIR/STTR program is a top priority of mine.
Today, our country is at a crossroads when it comes to our
innovative capacity, just as we were when Congress created
SBIR/STTR. In the latest Bloomberg Innovation Index, the United
States dropped out of the top 10 entirely. Regaining our
footing as one of the world's most innovative nations should be
a bipartisan goal. If we are to accomplish it, it is vital that
we utilize the power of small businesses.
I hope that today's discussion sheds light on the
importance of small business innovation, and I look forward to
working with my colleagues to improve these critical programs.
I now yield to the Ranking Member for his opening
statement, Mr. Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Madam Chair. And good morning
to all.
I thank all of you for being here as we examine the Small
Business Innovation Research and Small Business Technology
Transfer or SBIR and STTR programs. Innovation is the engine
that drives our economy. Technological breakthroughs and the
entrepreneurship it spurs build our economy and creates new
jobs by finding state-of-the-art solutions to difficult
problems and capitalizing on those new products. This
correlation is particularly important in the small business
arena. Small businesses tend to be more nimble, responding to
the market changes more rapidly than their bigger counterparts.
They drive the innovation sector and make us more agile in the
world economy. In this area of globalization, making it easier
for small businesses to develop and commercialize new,
innovative products is essential not only for America's
competitiveness but for its national security as well.
This is why programs like SBIR/STTR are very important.
These programs, envied and emulated around the world, were
created based on the premise that small technology-based firms
tend to be highly innovative and inventive and that this
innovation should be better harnessed by the Federal
Government. Binding these new developed technologies with other
Federal R&D efforts was seen as a natural extension to both
boost small business participation in Federal R&D activities
and to solve agency institutional problems, whether at the
Department of Defense, National Institutes of Health, or
Department of Energy.
All too often, good ideas never materialize because of a
myriad of obstacles. It can be lack of funding, lack of
understanding, or perceived lack of a marketplace for the truly
new and amazing technology. The SBIR and STTR programs bridge
the gap between the fantastical and the practical, while
building our economy and improving the function of the Federal
Government in the process.
The small businesses that participate in these programs are
rapidly pushing the boundaries of what is possible in a variety
of fields. From supporting our warfighters, to battling cancer
and COVID, the SBIR and STTR programs are emboldening our small
firms to contribute mightily to the fight.
Current authorization for these programs is set to expire
at the end of the next fiscal year. Getting a jump on this
process is essential and I am very happy the Chairwoman worked
with me to schedule this hearing and discuss our normal mutual
problem here. Thank you very much, Madam Chair.
Today, we have an excellent panel of witnesses to discuss
these programs and provide the Committee with suggestions to
make them better for small businesses and participating
agencies alike. I am looking forward to the hearing, hearing
those ideas, and working with my colleagues across the aisle
and across the capital to draft legislation we will all be
proud of and support.
With that, Madam Chair, I yield back. Thank you very much.
Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer. The
gentleman yields back.
I would like to take a moment to explain how this hearing
will proceed. Each witness will have 5 minutes to provide a
statement and each Committee Member will have 5 minutes for
questions. Please ensure that your microphone is on when you
begin speaking and that you return to mute when finished.
With that, I would like to introduce our first witness.
Our first witness is Dr. Joyce Tung, the Vice President of
research for 23andMe in Sunnydale, California. Now considered a
startup unicorn worth approximately $4 billion, 23andMe
received its first SBIR grant from the National Institute of
Health in 2020. She joined 23andMe in 2007 and leads the
research team which is responsible for consumer health and
ancestry R&D, academic and industry collaborations, and new
research strategies. She earned her Ph.D. in genetics from the
University of California, San Francisco, where she was a
National Science Foundation graduate research fellow. Welcome
Dr. Tung.
Our second witness is Ms. Pat Keady, cofounder, CEO, and
President of Aerosol Devices, Inc., in Fort Collins, Colorado.
She is the past President of the American Association for
Aerosol Research. Ms. Keady received her Master of Science
degree in Mechanical Engineering from the University of
Minnesota and holds two patents from Aerosol Instrumentation
with three more pending. Earlier this month, she was awarded a
Businesswoman of the Year award by CEO Today. Congratulations
and thank you for joining us, Ms. Keady.
Our third witness is Ms. Rebecca Todd, the Innovation
Consultant for the Arkansas Small Business and Technology
Development Center located in Little Rock, Arkansas. Ms. Todd
assists technology-based small businesses and university
researchers throughout Arkansas with navigating federal funding
opportunities within the SBIR and STTR programs that support
innovation with high commercial potential. She leads SBIR/STTR
training events and has strong working relationships with
agency program managers and state funding organizations.
Welcome, Ms. Todd.
Now I yield to the Ranking Member to introduce our final
witness.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Jerry Glover serves as executive director of the Small
Business Technology Council, SBTC, a trade association of
small, high-tech companies, most of whom are highly involved in
the SBIR program. Through the laws existence, she has been one
of its most active supporters. Mr. Glover has a unique blend of
private and public sector experience. A former CEO and attorney
in private practice, he has testified before Congress over 30
times and appeared in over 100 agency proceedings, including
rulemakings, adjudications, enforcement proceedings
predominantly within the SBIR and STTR programs. He probably
knows or would be able to know what our questions are before we
even ask him, Madam Chair. He obtained his undergraduate law
degrees from the University of Memphis and a LLM in
administrative law and economic regulation from George
Washington University. Mr. Glover, we welcome your
participation in today's hearing and look forward to your
testimony.
I yield back.
Chairwoman VELAZQUEZ. Thank you, Ranking Member. He yields
back.
Dr. Tung, you are now recognized for 5 minutes.
STATEMENTS OF DR. JOYCE TUNG, VICE PRESIDENT OF RESEARCH,
23ANDME, INC.; PAT KEADY, FOUNDER, CEO, AND PRESIDENT, AEROSOL
DEVICES INC.; REBECCA TODD, INNOVATION CONSULTANT, ARKANSAS
SMALL BUSINESS AND TECHNOLOGY DEVELOPMENT CENTER; JERE GLOVER,
EXECUTIVE DIRECTOR, SMALL BUSINESS TECHNOLOGY COUNCIL
STATEMENT OF JOYCE TUNG
Ms. TUNG. Chairwoman Velazquez, Ranking Member Luetkemeyer,
and other members of the Committee, thank you for the
opportunity to testify at today's hearing and share our
experience with the Small Business Innovation Research Program.
23andMe is a leading consumer genetics and research
company. Founded in 2006, based exclusively in the U.S. with
offices in California and testing performed in North Carolina,
the company's mission is to help people access, understand, and
benefit from the human genome. 23andMe has pioneered direct
access to genetic information as the only company with multiple
FDA clearance for over-the-counter genetic health information
and has created the world's largest crowdsourced platform for
genetic research.
In 2010, the year of our first grant application, we had
fewer than 50 employees and minimal revenue from our direct-to-
consumer genetics product. The business also had a goal to
accelerate scientific discovery by developing a highly
scalable, consumer centric research platform. This platform
needed a significant amount of investment in order to develop
the infrastructure, breadth, and size needed to make it a
scientifically valuable asset that would meaningfully benefit
the company. Because we were a small business and because our
mission was aligned with the mission of the National Institutes
of Health, we decided to apply to the SBIR program. Over
approximately 8 years, 23adMe applied for 10 SBIR grants and
received eight.
Reflecting back on our participation in the SBIR program,
we believe that we saw four main benefits. First, our SBIR
funded work helped us establish our scientific credibility. In
total, the work funded by our SBIR grant produced at least 32
scientific presentations and publications. This credibility
allowed us to realize the second benefit which was the
development of a commercially viable research platform.
By 2014, paid research partnerships with industry partners
made an important contribution to the company's revenue. The
growth and development of the research platform also enabled
the establishment in 2015 of the Therapeutics development
program at 23andMe.
Third, our SBIR grants helped us to make a substantial
contribution to the scientific community. The scientific
publications mentioned previously shared genetic insights on
conditions ranging from asthma and allergy to Parkinson's
disease. More than half of those publications were written in
collaboration with academic researchers at no cost to them. We
have also used SBIR funding to improve the ethnic diversity of
data in a protected NIH data repository for use by other
researchers.
Lastly, the SBIR program has helped us develop our early
career scientists. The exercise of applying for and executing a
grant builds very useful skills for the investigator which
benefits not only the individual but also the company.
The main challenge we experienced was the administrative
overhead of running the grant, specifically, the challenge of
adequately meeting the accounting requirements. The accounting
system requirements, which include time tracking on an hourly
basis and audit preparation were very intimidating, and even
with help from our finance department, the team spent multiple
hours every week on time tracking. Given the cost of setting up
the accounting program, having a singular small grant was not
really worth the effort. Thus, the dollar limit to the awards
was also a disincentive to applying.
Based on this experience, we have three recommendations.
The first is to reduce the administrative overhead for time
tracking and creating an accounting system.
The second is to consider increasing the max award. Given
the cost of setting themselves up to administer an SBIR award,
some small businesses may be more motivated to apply for the
program if the potential reward were greater.
Lastly, we recommend continuing to fund venture-backed
companies. In our early days as a venture-backed company, most
investors were interested in the development of our consumer
product rather than the research platform and there was
skepticism about our value as a research partner. Without SBIR
support, it would have been more difficult for us to build our
program. We see venture funding and SBIR funding as
complementary resources to drive higher risk, higher award,
technology innovation, and commercialization.
SBIR grants supported our scientific innovation at a time
when we lacked the track record and credibility to get
significant funding from other sources for our research and
development work. We believe research in industry, particularly
in small startups, will play an increasingly important role in
innovation and that the SBIR program can play a key role in
nurturing that innovation.
Though we are now too large to be eligible for SBIR grants,
we appreciate the opportunity to express our support for this
important program. Thank you.
Chairwoman VELAZQUEZ. Thank you, Dr. Tung.
Now we recognize Ms. Keady for 5 minutes. Welcome.
STATEMENT OF PAT KEADY
Ms. KEADY. I would like to thank Chairwoman Velazquez,
Ranking Member Mr. Luetkemeyer, and the entire Committee on
Small Business for inviting me to testify.
My name is Pat Keady. I am CEO and president of Aerosol
Devices, Inc., a small woman-owned business incorporated in
2014 in the state of Colorado. We develop advanced sampling and
measurement instruments sold primarily to scientists studying
the chemical and biological properties of airborne particles.
Our method of gently collecting aerosolized viruses, including
SARS-COV2, is considered by leading scientists to be the best
approach for determining whether airborne viruses present, as
well as the infectivity or viability of such viruses.
In 2020, we had revenue of $2.17 million, approximately
half in product sales and half in grants. We have 11 employees,
including nine with science and engineering degrees. We have
been named by Biz West Magazine as one of the 50 fastest
growing private businesses in Northern Colorado 2 years in a
row, ranking number one in our size class in 2019.
Most people recognize that starting a company is no easy
task and often requires significant financial resources. This
is especially true when developing a physical product that
requires design, prototypes, testing, patents, regulatory
approvals, tooling, and inventory. Having a good idea for a
product that customers will buy is essential but is certainly
not sufficient for achieving economic success.
Ninety-six percent of the startup funding for our company
came from the personal assets of the two cofounders, including
myself. Our startup capital totaled $587,000. This amount
covered the commercial development of our first product but was
insufficient for product refinement, global marketing, or
continuing new product research and development.
This is the point in our company history where the SBIR/
STTR program came in with necessary financial assistance. Since
our first NSF STTR phase one grant was awarded in 2017, we have
been awarded six phase one, three phase two, and two subawards
for a total of $4.68 million. Nearly half of our grants were
awarded in just the past 12 months to address the COVID
pandemic threat and to provide early warning of a bioterrorist
attack.
With an NSF grant awarded 1 year ago, we fast tracked
development of a compact, easy-to-use virus sampler that was
launched into the market last week. COVID-focused developments
can also be used for measurement of other respiratory
pathogens, such as seasonal influenza and tuberculosis. Our
grant funding has come from five different Federal agencies
demonstrating the versatility that our platform technology has
for addressing a wide variety of industry and societal needs.
Approximately half of the funding is a passthrough to our
university and industry collaborators. We have partnered with
five public universities and three companies, two of which are
also small private businesses. The university collaborations
support graduate students and help to build our Nation's
intellectual capital. Other products at least partially funded
by the grants include three patent applications, two
publications and journals, and dozens of conference
presentations.
Our primary interest lies in developing commercial
products, not simply doing cool research projects. We look
forward to the day when we can fund our own internal research
and development without government support. Writing grant
proposals and the reporting requirements and managing the
projects is a considerable effort for a small company. A
weakness in the SBIR/STTR model is that there is no true
funding to launch a product, what is called commercialization.
Because of the shortfall, we are actively seeking an
outside investor. But bringing on an investor has its own set
of complications and is not the right path for all businesses.
Until we reach that critical revenue milestone where we can
truly self-fund, we are grateful for the financial assistance
of the SBIR/STTR programs. Our goal is to offer an increasing
number of good-paying jobs and sell quality products to
customers around the world. We aim to provide an exceptional
return on the taxpayer investment.
The SBIR/STTR grants have been a lifeline for our small,
early stage company. I strongly encourage Congress to continue
and strengthen this vital program that provides essential
funding for America's entrepreneurs and helps de-risk
technology for potential investors.
Thank you. I look forward to your questions.
Chairwoman VELAZQUEZ. Thank you, Ms. Keady.
Ms. Todd, you are now recognized for 5 minutes.
STATEMENT OF REBECCA TODD
Ms. TODD. Good morning. My name is Rebecca Todd, innovation
specialist at the Arkansas Small Business and Technology
Development Center (ASBTDC) based at the University of Arkansas
at Little Rock. I am proud to be here to share some success
that the Federal and State Technology (FAST) program has
brought to innovative Arkansas businesses. Hopefully, too, I
can share some insight on how I believe Congress could and
should expand the success of the FAST program.
The ASBTDC has competed for and successfully performed on
FAST grants, averaging 125,000 for 1-year projects that are
matched by the University of Arkansas at Little Rock and the
state in 2010. This program has made an important impact on our
ability to provide the statewide average about the SBIR/STTR
program and related ASBTDC services.
From 2016 to 2020, ASBTDC assisted mentees with winning 52
SBIR/STTR awards totaling more than $23 million. The mentees
that we served through our FAST project are often too early
stage to attract private investment but as the largest source
of nondiluted funding for early stage research based companies,
the SBIR/STTR program critical to helping them successfully
develop and commercialize new products and services.
We continue to see sustained growth in our mentees'
success, both in number of SBIR/STTR proposal submissions, and
more importantly, awards. Since our 2010 opening FAST project,
ASBTDC has seen a 467 percent increase in total number of SBIR/
STTR awards for our mentee clients. Our participation in the
programs has positioned us as the state's leading resource in
providing SBIR/STTR proposal development services.
As a rural state, Arkansas has many areas that are
underserved. They lack the awareness of funding opportunities
available through the SBIR/STTR program. Our staff routinely
travel the state and utilize data conferencing to offer formal
and informal educational outreach specific to the SBIR/STTR
program and related ASBTDC service offerings. As a result of
this outreach, two faculty members of this program engaged our
services to submit SBIR applications to the U.S. Department of
Agriculture.
ASBTDC has used its participation in the FAST program to
reach strong statewide partners over the last decade. Referrals
from these partners and through mentees learn of our centers
SBIR/STTR services and expand the research of our program.
Mentees are often inspired by success stories. Women leaders in
innovation often serve as speakers at our training events and
their SBIR/STTR successes are featured in our Lab Launch
newsletter. For example, GSS Group, woman-owned horticulture
company, GSS Group won USDA SBIR phase one awards on their
first try after engaging our center services. This company's
CEO has been a strong champion for our center, leading to a
number of new mentee referrals from other AgTech companies.
This success story in our Lab Launch newsletter and in our
YouTube SBIR success stories video have attracted attention of
other women researchers across the state.
As the number of programs grows in Arkansas, particularly
at the university level, it has become increasingly important
that ASBTDC grow capacity to actively serve potential mentee
base.
In essence, the FAST program has enabled us to establish a
network of support for small business innovation and provide
access for all small businesses that would not have existed
without the support of the FAST program.
While the funds supporting our efforts have been limited,
ASBTDC has still managed to help mentees, especially with SBIR
and FAST projects. We believe other underserved areas should
have the ability to access the FAST program funds to increase
SBIR programmatic outreach and services to their populations.
The FAST program [inaudible] greater value for grant
participants if the amount of the grants was expanded. This
would support programmatic offers. If the FAST grant was
extended to 3 years per project, it would allow FAST awardees,
like ASBTDC to expand efforts, dedicate more time to existing
and new programmatic offerings.
The more that FAST awardees like ASBTDC can cultivate SBIR/
STTR success for small businesses across the country, the
greater the economic payoff in terms of growth and the number
of new innovative companies, high-tech, high-paying jobs that
will attract more students willing to go to universities and
new solutions for technological challenge areas.
For every state that participates in FAST, as word
continues to spread about Arkansas's success in growing
innovative companies and jobs around a founder's scientific
passions, the motivation for companies to participate in the
SBIR/STTR program will continue to grow all across our state.
This has been a successful model for Arkansas, and we believe
that it can and should be replicated.
Chairwoman VELAZQUEZ. Thank you, Ms. Todd.
Now we recognize Mr. Glover for 5 minutes.
STATEMENT OF JERE GLOVER
Mr. GLOVER. Good morning. I am Jere Glover, executive
director of the Small Business Technology Council of the
National Small Business Association.
I had the privilege 40 years ago of testifying before
Congress in support of the SBIR legislation. At that time, the
U.S. was the world leader, worldwide leader in innovation. We
dominated the technology capital world. We had the best
education system and the strongest patent system in the world,
America's small business, the most innovative sector of the
economy and a wellspring of entrepreneurial energy but received
only 5 percent of Federal R&D funding. Today, about half of
venture capital investments are made overseas. Eighty percent
of all venture capital seed investments, early stage
investments go into just four industries and to a limited
number of states. Our patent system is severely weakened and
small business still receives a very small portion of the
Federal R&D dollars.
Small business, with the help of the SBIR program, is still
the most innovative sector in the U.S. The SBIR program
provides seed corn for innovation combining private enterprise
with American ingenuity to enable innovations and Federal R&D
funding while building on the new products and new businesses.
When it comes to worldwide competition, the United States,
as the Chairwoman has pointed out, has dropped from first to
11th, not even the top 10. Basically, China is simply eating
our lunch. The Beijing Institute of Collaborative Innovation
has funded 150 U.S. universities' technologies. One hundred
eight of those they have commercialized. They have a venture
fund now to develop these U.S. technologies of $616 million.
Europe, the European Union is funding 20 percent of its R&D to
small business. That is at least twice what the U.S. does.
France has created a $13 billion disruptive technology fund.
The one important thing to remember about the SBIR from an
international competition point of view, it is the only U.S.
program that requires funding to U.S. companies owned by U.S.
citizens and the work be done in America. The SBIR program is
working and working well. After 20 National Academy of Sciences
study, four economic impact studies that look over half of the
SBIR phase two awards, we can clearly say that it is an engine
that drives innovation in America. The return on investment for
the STTR/SBIR firm program at the National Cancer Institute is
33 to 1. At DOD, it is 22 to 1. For every dollar invested, $3
of Federal, state, and local taxes are generated.
In terms of success, I can guarantee you that at least
three technologies you use on a regular basis were funded by
SBIR. The GPS on the chip, combining Wi-Fi and Bluetooth and
the CMAS camera technology, all of which are used in your
cellphones. So you can clearly see that this, among all the
technologies, there is a list of SBIR success stories in the
back of my testimony.
The market actually loves the SBIR program. Seventeen
countries have copied it. As I pointed out, China has done an
excellent job of copying it and taking it further. Ten percent
or 3,000 SBIR firms have VC inventions. Eight hundred twenty-
nine SBIR firms have gone public. Thirteen hundred have been
acquired by other companies. And 70 percent of all university
licenses are going to small business, which recognizes the
importance of small business to university commercialization.
What is working with he SBIR program? One, job creation.
Small business created over 1.5 million jobs. And it is a
state-by-state analysis how many jobs are being created in
each. Fifty to 70 percent of all phase two SBIRs are
commercialized.
GSA has done one billion dollars worth of phase three
contracts in the last 2 years. Likewise, the Air Force and Navy
combined have done over $2 million of phase three contracts.
Agencies are speeding up the contracting process but more needs
to be done.
We need to encourage innovation and support small business
innovation by, one, making SBIR permenant; two, doubling the
SBIR/STTR program and restoring the Rapid Innovation Fund
funding. We need to strengthen the patent system. We need to
increase the Federal R&D spending. We need to set a goal of 15
percent for Federal R&D for small businesses. And we need to
continue streamlining and simplifying the contracting process.
If we take these actions, you will unleash new technologies for
America while strengthening our economy, rejuvenating America's
leadership in innovation. We can beat China and become number
one in innovation again if we effectively use the SBIR/STTR
program.
SBIR is like printing money without inflationary effect.
Three dollars are generated for every dollar spent.
It is working well. Thank you.
Chairwoman VELAZQUEZ. Thank you, Mr. Glover.
I will begin by recognizing myself for 5 minutes.
Dr. Tung, I would like to address my first question to you.
One of the goals of the SBIR/STTR program is to increase
private sector commercialization of innovations derived from
federally funded R&D. Dr. Tung, how did early seed funding from
SBIR help develop the genetic testing services available today?
Ms. TUNG. I can provide a few examples. In the early days
of 23andMe, the genetic health information we provided to
customers was based solely on published research and the
scientific literature. Today, many of our new genetic health
reports are based on scientific results from our own research
platform, the development of which was partially supported by
SBIR funding. In addition, we have published 32 scientific
papers supported by SBIR funding. Those results may be used by
others in the scientific community to develop their own
products and services.
Chairwoman VELAZQUEZ. Thank you.
Ms. Tung, the SBIR and STTR programs share four goals and
one is to foster inclusion and diversification among innovative
firms. Yet, this continues to be a challenge. One of my top
priorities for the upcoming reauthorization is to improve
participation of minority and disadvantaged persons in the
program. In your experience, what strategies have worked and
what are the greatest challenges to this effort?
Ms. TODD. So our primary areas of industry and regions
where large populations of these groups are based, it would
helpful if SBIR/STTR opportunities were presented in a way that
highlighted specific research interests that align with these
industry types. For example, SBIR/STTR research topics might be
highlighted in regions where agriculture is a prominent
industry. Sharing success stories of companies with team
members who share demographic features of the groups that you
are targeting for increased SBIR/STTR program participation is
always helpful. Videos and feature articles in newsletters that
have photos are a couple of ways to communicate these
inspirational stories. To encourage participation from HBCUs,
highlighting the partnership opportunity inherent in both SBIRs
and STTRs would be particularly helpful.
ASBTDC previously hosted an introductory SBIR/STTR workshop
at an HBCU that featured SBIR awardees both from local
companies and their university subcontract leadership team.
Chairwoman VELAZQUEZ. Thank you, Ms. Todd.
We hear time and again about the struggles that small
businesses face in overcoming the ``Valley of Death'' where
research is derailed because of a lack of funding. This
Committee is dedicated to modernizing the program in such a way
to better assist businesses in overcoming this stumbling block.
To the panel, what have you found to be the best mechanisms
to help businesses commercialize their products?
Mr. Glover, I would like to start with you.
Mr. GLOVER. I think Phase III of the SBIR program, which is
no Federal money and no SBIR money. It has been the single
best. That is why I wanted to highlight how many billions of
dollars are now going into Phase III. We are starting to see
that happening. It needs to happen a lot more. There are
agencies that do virtually nothing in that area and do not have
a good record. Some are just getting started. But phase three
is an opportunity. The use of venture funding was the core for
the first 20 years of the SBIR program for Phase III. As VC
moved on to later stage investments, that VC investments of
RAVC waned. I think phase three has got to be the best way we
can do that and make sure focus where it is not SBIR dollars
but it is private sector and non-SBIR goverenment dollars.
Chairwoman VELAZQUEZ. Thank you.
Ms. Keady, would you like to comment?
Ms. KEADY. Well, I would definitely agree that the phase
three commercialization grants would be extremely helpful. We
have never gotten one. The agencies where we have gotten our
grants do not offer money for this and so we have just had to
do our own bootstrapping in terms of paying for the
commercialization. And because we have a global product, it is
also quite expensive to adequately market internationally. And
so one of the things we are looking at is trying to start a
search for investing funding. Investors are very risk averse so
the SBIR funding is good for helping de-risk that. But so far
we have been deemed too early for significant investment in
terms of attracting a lot of investment money. But we are
starting that path. But that is the biggest challenge I would
agree.
Chairwoman VELAZQUEZ. Thank you, Ms. Keady.
My time has now expired. I will recognize the Ranking
Member, Mr. Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Mr. Glover, I would like to start with you. One of my
biggest priorities on the Committee is to root out and rectify
the waste, fraud, and abuse in every SBA administered program.
Recent audits that we have been told about here are very
concerning with regards to this. So my question basically is,
how are these two programs faring with regards to waste, fraud
and abuse in comparison to other SBA programs?
Mr. GLOVER. In the history of the program, I think there
have been less than 20 waste, fraud, and abuse cases that have
been brought and that is .0001 percent of all of the SBIR
program awards. Because of the competitive nature, it is really
tough to try to engage in fraud there. You have got to first
win a phase one, then win a phase two, and it has been not
fraud free but has been very limited, and most of those cases
involved university connection with a small business where they
crossed the line and did something----
Mr. LUETKEMEYER. So the competitiveness of the program sort
of minimizes the ability for fraud because it is not something
that if you qualify you automatically get the money. If you
qualify for it you compete for other people against that.
Therefore, there is sort of a bump in the road there to prevent
that from happening. Would that be a fair statement?
Mr. GLOVER. Absolutely, sir.
Mr. LUETKEMEYER. Okay. Thank you very much.
Ms. Todd, can you explain to me how the FAST program
differs from the original SBDC model of outreach in counseling,
please?
Ms. TODD. I am not familiar with the original model. I can
speak to some of the offerings of our FAST program. Would that
be----
Mr. LUETKEMEYER. Well, the SBDC model is such that they do
have outreach. They do have counseling in it. And is that not
what a big part of the FAST program is?
Ms. TODD. Okay, yes. In addition to the standard services
offered through our center through the FAST program, we are
able to offer enhance outreach specific to our technology
clients across the state, including SBIR/STTR program
exploration, proposal planning guidance and review.
Mr. LUETKEMEYER. I wish you would answer me rather than
reading your answer. I understand what you are doing there but
I asked you a question with regards to the SBDC model. It is
not in your answer. Would you please answer that question? What
is the difference between the FAST program and the outreach and
counseling program of SBDCs?
Ms. TODD. The FAST program allows us to create programs and
other offerings of our own that we know will be tailored to
address the needs of our audiences here in the state. So we
were able to identify what the needs are among all the----
Mr. LUETKEMEYER. Okay. That is what the FAST program is.
You still have not answered my question.
So the problem here is that the FAST program for almost 2
decades, almost 20 years has not been appropriated. The annual
appropriation has not come through; yet, they have been able to
get the money for it. And my question I guess is why is it so
essential that somebody apparently in the Senate keeps putting
money in there in spite of the fact that it is not authorized?
Do you have an idea on that?
Ms. TODD. We have been able to achieve lots of success in
the state of Arkansas through the FAST program, so obviously
they have more capacity to serve companies and inspire
companies across the state. Help them with the very competitive
and challenging process of preparing and submitting these
applications.
Mr. LUETKEMEYER. You are doing it better than----
Ms. TODD. So we have things----
Mr. LUETKEMEYER. So you are doing it better than what the
SBDC model can actually accommodate?
Ms. TODD. We are able to expand on that through the FAST
program to tailor it and make it our own. It is successful here
in the state of Arkansas.
Mr. LUETKEMEYER. Okay. Mr. Glover, you made a lot of
comments with regards to the phase three here stuff and I think
Ms. Keady may have misstated here when she indicated that it
was money that they need for this from the standpoint that it
is actually not a grant. It is a contract that the government,
if I am not mistaken here, has with the individual or the
company. To the first two phases, money is granted, and to the
third phase you are then given a contract to provide this good
or service to the government or to whomever as the phase three.
Is that not correct?
Mr. GLOVER. It is correct. The phase three money from the
government would be in the case of the Defense Department, now
$4 billion over the last couple of years buying SBIR technology
and putting it in the field for the warfighter or taking the
technology to a further level of readiness so that it is
ready----
Mr. LUETKEMEYER. Okay, so you wanted to further dollars to
the government to be able to purchase whatever the innovation
is that is being paid for through the SBIR program; is that
correct? Is that what you are saying?
Mr. GLOVER. That is correct.
Mr. LUETKEMEYER. Very good. I see my time is up. Thank you
very much.
Madam Chair, I yield back.
Chairwoman VELAZQUEZ. Time has expired and now we recognize
the gentleman from Colorado, Mr. Crow, Chairman of the
Subcommittee on Innovation, Entrepreneurship, and Workforce
Development.
Mr. CROW. Thank you, Madam Chair.
Ms. Keady, last year you developed a product that helped
researchers confirm that COVID spreads through the air and your
technology likely saved lives by informing scientists and
policymakers on how to prevent infection. And your case also
demonstrates why Federal investments in R&D are so important.
In your testimony, you mentioned that your grant funding came
from the National Science Foundation, the Department of Energy,
the NIH, Department of Defense, and Department of Homeland
Security. Can you just briefly explain the differences between
each agency's administration of the SBIR and STTR programs?
Ms. KEADY. All of the agencies have very different
policies, procedures, web portals for submitting grants. They
have different procedures for reviewing proposals and for
funding. So each one of them we have to treat as an entirely
separate thing. It would very helpful if there were common
portals or common procedures but that is not the case today. We
have only recently gotten grants from the DOD and DHS, so I am
less familiar with what all of that entails. We are just at the
very, very beginning of those. I have the most experience with
NSF and they have lots of opportunities for learning. For
example, we participated in an I-Corps program which is about
customer discovery. I think that was initiated by NSF and some
of the other agencies have taken that up. But they are all
very, very different. So we just really have to treat them all
as a separate customer if you will and learn what their
particular process is.
Mr. CROW. And you kind of got to my point by just talking
about how more complicated it is if you are having to review
and understand and learn all these different entities,
different processes. Could you just paint a very short picture
for us as to how, if you had a common portal and a common
process, how would that impact you and what type of resources
would be freed up for you to do the R&D that you do so well?
Ms. KEADY. Thank you for that question.
I just think from an administrative point of view it would
save time in having to create the reports that are needed,
submit the reports. I just think it would streamline the
administrative side. The R&D, you know, is unique for each
grant and so that does not change but the administrative side
would be much easier.
Mr. CROW. And then you mentioned that the SBIR/STTR has
limited support for the final stage of development in bringing
a product to market. What could be done in your view through
these programs or through other programs to help businesses
find investors for that final stage that is obviously so
critical to getting it done?
Ms. KEADY. So I appreciate the comment earlier about that
there are phase three contracts but only certain agencies issue
those, and DOD being one of them. We have just started with
them so we have not gotten that far yet. NSF does not, and I do
not believe NIH does, at least not for the programs that we
have had.
Now, your question about how to help companies find
investors, I think we have been very successful at getting the
grants. We have so far not gotten an investor, although we are
trying. And we need to learn how to attract investors because
they are looking for different things. And I would just say
that an investor is a long-term commitment, just like a
marriage. You are entering this relationship for the long term,
at least until you have an exit. So you have to be very careful
about who your partner is and so the investor and the company's
goals are in alignment. And so that is what we are seeking. We
are confident we will find an investor. We just have not yet.
Mr. CROW. Thanks, Ms. Keady. I know, you know, I hail from
your home state as well, from Colorado, and we are all very
proud of you in Colorado. And the picture behind you of the
mountains is making me anxious to head west. So I will be
heading your way shortly. Thank you for your testimony.
Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Texas, Mr. Williams,
Vice Ranking Member of the Committee for 5 minutes.
Mr. WILLIAMS. Thank you, Madam Chair.
The Small Business Administration under President Biden has
had problems overseeing programs for the past few months. Just
to name a few, there has been miscommunication between the
Inspector General and Administrator Guzman, fraud with the EIDL
program, and delays of implementing critical funding programs
like the Shuttered Venue operator grants. The SBIR and the STTR
programs discussed today are carried out by several agencies
that are overseen by the SBA. And before we authorize these
programs we must ensure the proper guardrails are in place so
that both are fulfilling their intended purpose in helping
small business grow.
So Mr. Glover, what recommendations can you give to the SBA
for these programs so that we can avoid some of the problems we
have seen out of the agency this year and some of those that I
just mentioned?
Mr. GLOVER. Well, the SBIR program relies extremely
strongly on competition. And it has been targeted for audits.
They looked at everything very carefully. And quite frankly,
they found very little. And I think it is because there is so
much competition.
Quite frankly, it is tough to win an SBIR award. It is very
hard to do. And you do not find somebody who wants to commit
fraud having to spend that kind of energy putting it together.
SBIR proposals are reviewed primarily by scientists who are
familiar with the technology and familiar with the area. It is
hard to con those reviewers. So I think the SBIR program is
fortunate in that regard but I think that there is a problem
with the agencies that could be doing more Phase III. We have
been talking to the Department of Energy about their cost
share. They have for follow-on grants outside the SBIR program
and even for Phase III cost sharing. You have a million dollar
award. You have to come up with $200,000 cost share. Small
business just cannot do that. So basically, small business is
shut out of all DOE's follow-on, non-SBIR funding. They get
less than 3 percent there. So it is a problem but it is a
problem that is diminished because of the way the program was
carefully structured at the very beginning when it first
started and what we maintained throughout its history.
Mr. CROW. Let me move on. Thank you.
Innovation drives economic growth and gives America a
strong presence in global markets. Many of these innovators
start out as small businesses with great ideas but maybe do not
have the knowledge on how to expand operations to get in the
pipeline for Federal contracts. Often there is excessive
amounts of red tape, administrative burdens that make it
overwhelming for small businesses to attempt to do business
with the Federal Government.
So Ms. Tung, you mentioned in your testimony that this can
be intimidating for scientists who are not familiar with this
process. So can you discuss personal challenges you experienced
with the application process for 23andMe and how we can cut red
tape to streamline proposals for SBIR and STTR programs?
Ms. TUNG. Sure. So I would say that our primary challenges
were not with the application process itself which I think was
relatively straightforward. I think we were more intimidated by
the rules that we saw afterwards for setting up an accounting
system and for tracking time because that is how we got
reimbursement for the funding that we received. So we were very
fortunate in having a colleague who had done some accounting
and auditing work. And so he helped us sort of understand and
interpret the guidelines. But I would say some of our
scientists, of course, were also scientists who had gotten
grants in academia and those sorts of RO1 grants did not have
the same sort of accounting, auditing, and time tracking
requirements. So I think if you want to use those dollars to
allow the scientists to spend more time on the actual research,
you might consider reducing some of the auditing, accounting,
and time tracking requirements.
Mr. WILLIAMS. All right. Thank you.
The SBIR program has had bipartisan support since it began
during the Reagan administration. Each reauthorization since
then has made significant changes from increasing award sizes
to shifting focus of the program to commercialization.
Currently, it is set to expire September 30th of 2021. As
reauthorization conversations continue, we should be looking to
make sure we are getting the maximum return on investment for
these taxpayer dollars. So finally, Mr. Glover, can you explain
the effects it would have on small business if this program was
not authorized?
Mr. GLOVER. Well, the first thing, there would be 7,000
individuals and farms around the country that would not be
getting money to take their ideas, their technology, and even
advanced innovations at all. Given the fact that venture
capitalists only make a couple thousand seed investments a
year, that 7,000 SBIR is absolutely critical to fund it. It
should be a lot higher. When we look at the rest of the world,
we look at what China is doing, we look at even what the
European Union is doing, everybody else is doing more. They far
passed us. They have taken the SBIR program, copied it, and
then made it bigger and better. So it would mean a lot of
companies would not have any chance at all to get their
technology advanced at all.
Mr. WILLIAMS. Okay. Thank you. And I yield my time back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from Kansas, Ms. Davids,
Chairwoman of the Subcommittee on Economic Growth, Tax, and
Capital Access for 5 minutes.
Ms. DAVIDS. Thank you, Chairwoman. And I am, of course,
glad we are holding this hearing to review the importance of
the SBIR and STTR programs. And how we can improve them as
Congress must reauthorize the programs this year.
As we have heard, these programs play an incredibly
valuable role in our entrepreneurial ecosystem by providing
support to innovators and entrepreneurs throughout their
creation, development, and commercialization stages of their
products and businesses. And the Kansas 3rd Congressional
District, of which I have the privilege of representing, has
some pretty amazing SBIR and STTR funded centers and partners.
Folks like the Mid-America Manufacturing Technology Center, the
Bio Science and Technology Business Center at the University of
Kansas Medical Center. You know, these centers are invaluable
resources to entrepreneurs and innovators who are looking to
develop and advance their small businesses and to commercialize
their products. But even with these awesome resources that we
have in my state, Kansas has historically received a pretty low
number of SBIR/STTR awards.
In 2019, I had the chance to hold a field hearing in Kansas
City, Kansas, to focus on what we like to call the Silicon
Prairie in the technological entrepreneurship and innovation
that is going there in the heartland. And these programs are
essential in expanding and supporting the small businesses that
we have got.
So I would like to start off with Ms. Todd. As an expert on
bringing these federally funded R&D products to the
marketplace, I am curious if you could talk to us a little bit
about the programmatic changes that would have the most impact
on the types of businesses that you have been supporting.
Ms. TODD. Sure. Thank you.
So in terms of commercialization, many of the agencies have
adopted the Technical and Business Assistance Program, even in
phase one. And I have seen here in Arkansas, it has been a
great support for our companies as they are looking to expand
on not just the research and development projects but also to
put into place practices that would help them further down the
road as they plan their marketing sale strategies for
successfully commercialized products and services.
So I would say one thing that would help is to have all the
resources needed to help all the agencies, even if they wanted
to offer these TABA programs for awarded companies, so they can
have those resources to be successful in commercialization.
Also, many of the agencies offer programs that are on
Customer Discovery, the act four models. And I think that would
be helpful for all the agencies to offer. It is a key piece of
successful commercialization. They learn about the market need
and limitations of current solutions. So this is a great way
for awardees to be able to ensure that their final technology
really aligns with what those needs are which typically changes
over time as well.
Ms. DAVIDS. Yeah. Well, I appreciate that.
And Mr. Glover, you know, I kind of want to take you back
on some of what you were bringing up earlier. I am curious if
you could maybe, if you have some recommendations about ways to
support businesses through phase three. You had mentioned that
in your previous response. Just curious if you have some
recommendations for us.
Mr. GLOVER. Well, one, getting a Phase III from the
government is part of it, but getting Phase III from the
private sector. We were challenged with the ``Valley of
Death.'' We may sometimes make the ``Valley of Death'' wider
but we do not make it any shallower. And our venture capital,
which had been the mainstay of American ingenuity for 40 years.
It came shortly before the SBIR program really kicked in. It
really has moved offshore and to later stage investments, so it
is really tough. Creating a program to help there. Angel
investors are there but they are not as busy as we think they
should be. They are not making as many investments. So it
really is a challenge. And what is scary is when you see other
countries doing a better job of this than we do. So creating
funds that will take technology to a next level, not
necessarily SBIR funds because we want to keep that program
that has worked so well pure but it is time for us to realize
that we are at a competitive disadvantage and we need to create
new activities. This is the only small business program for
innovation out there. There should be more.
Ms. DAVIDS. I appreciate that.
Chairwoman VELAZQUEZ. Thank you.
Ms. DAVIDS. Thank you. And I yield back, Madam Chair.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from Pennsylvania, Mr.
Meuser, for 5 minutes, who is the Ranking Member on the
Subcommittee on Economic Growth, Tax, and Capital Access.
Mr. MEUSER. Thank you, Madam, Chair. Thank you to our
witnesses. I appreciate your input and your information.
So Mr. Glover, in your testimony you say that the primary
strength of the SBIR program is invest in early innovation well
before venture capital firms and such. Yet, many companies
receive the SBIR grant year after year. So is that common or is
it usually they receive it for 1 year, maybe 2, but not 8 to 10
years in a row?
Mr. GLOVER. Well, when we look at the government's pattern
of buying things what we see is that if you are a large
company, we buy from them every year forever. If you are a
large university like Johns Hopkins with $2 billion a year of
coming in, everybody accepts that. For small business, we need
more small businesses at every level. Roughly 25 percent of all
SBIR winners are brand new to the program and that has been
true for the whole history of the program. The government
actually buys SBIR research for technology for government
purposes. So a big part, one of the core reasons the SBIR
program was founded in the congressional mandate is to give the
government research that it needs. So there are companies, yes,
that do year after year and they do it because they are really
good. It is a very competitive program. If they were not giving
the government the research they wanted for their programmatic
needs, they would not get follow-on awards. So you need the mix
of all.
Mr. MEUSER. I can appreciate that. I can appreciate that. I
have been a small businessperson for almost 25 years and I
worked with thousands of small businesses over time, some doing
business with the government, many with R&D budgets. I am not
sure I know of any that have actually received this. And our
role here is not to be critical but to provide oversight.
So when the companies do receive these investments, okay,
the taxpayer dollar investments, do you review their EBIDTA at
the end of the year? What sort of financial disclosures go into
it? I mean, if a company, you invest $200,000 and 2 years later
their net earnings are $10 million and their R&D budget is
pretty substantial as well, does that perhaps disqualify them
or does that make them more attractive because you are seeing a
perceived return on investment?
Mr. GLOVER. The criteria to be eligible for the SBIR
program is 500 employees. And if you are a very wealthy company
and doing very well, that is okay. It is perfectly legal under
the program and it happens.
Mr. MEUSER. But it is not necessary.
Mr. GLOVER. Many of our companies graduate. They get
bigger. They get acquired by new companies. I have in the back
of my testimony a list of 10 major DOD contractors that have
acquired SBIR firms through the years, a list of the first them
have acquired. One company I think has acquired 44 SBIR firms
through the years.
Mr. MEUSER. Okay.
Mr. GLOVER. So it is a career ladder. If you try to only
seed companies, you may get a few home runs. What we see in the
program is----
Mr. MEUSER. Do you do a real ROI estimate annually on the
taxpayer dollars that go in versus the company's growth?
Mr. GLOVER. We do audits certainly for defense. Now,
grants, some agencies do grants and only grants for
universities, for small business, and for everybody else. Those
grants are a little softer audits. The DOD audits SBIR firms.
DCAA is working on that. So they do look at it. But what they
are auditing for is to make sure that there is no waste and
fraud and that the money is properly spent. The return on
investment is what we have seen, the economic impacts that it
shows, and that is where you are getting 22 to 33 percent
return on investment and the taxpayer is getting $3 of taxes
for every dollar they invest in the SBIR program at the
National Cancer Institute and at DOD which is well over half
the program.
Mr. MEUSER. Okay. Well, I had a couple of questions for Ms.
Keady to see what her experience is but my time is about
wrapped up. So Ms. Keady, I may send those questions over to
you if you do not mind.
But I yield back, Madam Chair.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Maryland, Mr. Mfume,
Chairman of the Subcommittee on Contracting and Infrastructure
for 5 minutes.
Mr. MFUME. Madam Chair, thank you very much. And thank you
for what clearly is a very important hearing to look at seed
programs and other things that are available.
I would like to just, if I might, direct my question to Dr.
Tung. I was going through your testimony, Doctor, and you
mentioned that you had an 80 percent success rate with SBIR
applications. And I do not know if this question may have been
previously asked, but that just strikes me as an
extraordinarily high number. And so I wanted, for the sake of
better understanding, to get you to talk about what you think
is directly attributable to that rate and can it be or is it
being replicated. So I would like to know whether or not it is
a matter of innovation, it is a matter of who the innovator is,
or if it is a matter of the nature of the research so that I
might better understand how we get up to and maintain, I guess,
an 80 percent figure, success rate.
Ms. TUNG. So, you know, of course I cannot speak to the
grant review Committees who are the ones who actually assess
the grant applications. I can say that what we were told by our
program officer was that the comments they had gotten back was
that the quality of the science that we were doing was very
high. It was like fairly unique and I think we also have a
track record, to Mr. Glover's point, of actually executing on
the things that we said that we did and really getting the
results out there into the scientific community because it is a
competitive process. So I think that if we had not continued to
do that grant over grant, my guess is that we probably would
not have continued to receive them.
Mr. MFUME. And Mr. Glover, may I go back to the line of
questioning of the gentleman before me with respect to the
average number of years that a business can qualify and get
funded with follow-up rewards? And I am assuming, this is only
my assumption, that there is no limit to that, or is there?
Mr. GLOVER. There is no limit to that.
Mr. MFUME. Okay. Does anyone at your agency review their
earnings before interest, taxes, depreciation, and
amortization, to see whether or not these businesses are
growing or not growing the way they should be?
Mr. GLOVER. The agencies have had economic impact studies
done that do analysis of that and show how many follow-on
research dollars are given, how many follow-on jobs are
created. They have done a careful analysis of over half of all
the SBIRs in the last 10 years. And so they look at all of
that. They do detailed reports and provide those back to the
public and to the agency and to Congress.
Mr. MFUME. But are they also looking at the EBIDTA of each
one of those applicants that continue to get funded?
Mr. GLOVER. No. And quite frankly, I would urge you not to
have that happen because that is more paperwork and more
challenge. This is a program that is primarily driven by
science. The science and innovation. And when we add different
layers of review, it slows down the process. It makes the
scientists take time away from doing the science and innovation
and have to do paperwork. And one of the common complaints we
have now is that there is already way too much paperwork
involved in this process.
Mr. MFUME. I am sure the members of this Committee would
argue with you that there is too much paperwork that we are
involved in, but in order to assure taxpayers that there is not
any waste, not any fraud, not any abuse, I think that
additional work in that area is warranted. I think it is
justified.
What I am really concerned about though is if I can get
unlimited awards year after year because of my innovation, who
I am as an innovator or the research or whatever, it seems to
me that reduces the amount of money available for a larger pool
of applicants who want to get funded but the money is not there
because if it is 3 or 5 years, 6 or year 10, one particular
business continues to get awards. Could you just kind of speak
to that?
Mr. GLOVER. This is basically the only program that gives
small business a clear window into the Federal R&D research
funding. And you have got giant corporations, you know, who get
hundreds of billions of dollars of Federal money. Small
business needs this window open and it has worked very
successful. Remember, one of the missions is to give the
government research that it wants. Without this program, small
business is virtually shut out of the Federal R&D research
program. We need to open up more windows for small business.
Mr. MFUME. I understand. It just seems that without any cap
on the number of years, Business A could get these awards for
15, 20 years, let's say, and there are a ton of other small
businesses trying to get in because they have got clear needs
for innovation and research but there is a finite number of
dollars available today. And so if those dollars are eaten up
because we do not try to get people in and graduate them out,
it just seems to me that we are complicating the problem.
But I will yield back, Madam Chair. Thank you for the
opportunity to ask questions.
Chairwoman VELAZQUEZ. Is he on? Mr. Garbarino, I think that
you are muted.
Mr. GARBARINO. Thank you very much, Chairwoman.
I just have a quick question. This is a lot of good
testimony, a lot of great answers so far about the SBIR
program. But this is really for anybody on the panel.
I know Mr. Crow asked about standardizing the template or
making things easier or standardizing some of the paperwork,
but based on the experiences with SBIR, do any of you have any
specific recommendations? And I know some of you touched on it
a little bit in the testimony, about how to help improve the
program to make it even better?
And anybody can just jump right in.
Ms. KEADY. I have one thing I would like to mention that
has not been mentioned yet. There is a significant time gap
between receiving a phase one and a phase two and that can be
very challenging for a small company who is trying to keep
their employees on the payroll. Sometimes it is 4 months, it
could be 12 months or more gap, and so you want to continue the
work but there is this challenge of how to overcome that as
well.
Mr. GARBARINO. So you would say making it more of a
standardized time? I mean, a 4 month to a year delay, that is a
big gap. What would your recommendation be, just making it more
standard or moving paperwork quicker?
Ms. KEADY. I have not thought about it in depth but some
way to streamline the reviews of going from a phase one to
phase two would be helpful. And we are also not guaranteed of
getting a phase two so there is that uncertainty as well,
although the phase twos have a higher success rate in general
than the phase ones just because it is a smaller pool of
applicants and they are already successful in having gotten the
phase one. But that is something that if there was a way that
that could be shortened that period of time for review and
granting award would be shortened, that would be extremely
helpful as well.
Mr. GARBARINO. I appreciate that.
Mr. GLOVER. If I may comment, last year's NDAA required DOD
to at least standardize, simplify, and expedite a contract
award. The GAO did a study a few years ago that shows it takes
2 years to get between phase one to phase two in many cases.
There should be oversight on that making sure that, in fact,
happens. There ought to be a standard contract for phase one, a
standard contract for phase two, and a standard contract for
phase three. And once a decision is made it should happen. And
that delay is costing valuable time, especially with innovation
happening so fast and having such a short half-life. We have
got to do it quickly and the government is years behind in
terms of that area. You hit a very sensitive area. I would be
happy to talk to you more about that.
Mr. GARBARINO. I appreciate that. It seems like we get in
our own way sometimes. So I think we should look into
addressing that.
From the other witnesses, is there anything else you would
like to add to that specifically or any other ideas that we
should be looking at? If not, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from Minnesota, Mr.
Phillips, Chairman of the Subcommittee on Oversight,
Investigations, and Regulations for 5 minutes.
Mr. PHILLIPS. Thank you, Madam Chair. And greetings to our
witnesses. Thank you for being with us.
I represent a district in Minnesota that is home to a
number of the world's largest medical device firms, many of
them founded and cultivated right in the Twin Cities and
started in garages. And those are the great American success
stories that we all love and wish to nurture more of. I, like
many of my colleagues on this Committee are dismayed by the
fact we seem to be falling behind other countries in the world.
My first question is on that subject to you, Mr. Glover.
You had mentioned in your earlier comments that China and the
EU have taken the SBIR model and made it ``bigger and better.''
I would love for you to take a little time and share with our
Committee how they have done so with some specifics so that we
might be able to better understand how they have leveraged it
and do better ourselves.
Mr. GLOVER. Well, they have steadily increased the
percentage of their research dollars going to small business.
And I footnote that because most frankly most people do not
believe it but it is going on. A few years ago it was 16
percent. It is now up to 20 percent. So they are putting more
money there. Now, quite frankly, Europe does not have the
entrepreneurial spirit, the entrepreneurial drive that we have
but they are putting more money into it. So the main thing is
more money.
I highlighted the one Chinese institute because they did 18
universities in China get together with dozens of universities
in America to take U.S. research, collaborate with them, often,
and I suspect most times, the follow-on research and
commercialization is done in China. But they have taken 150
products and gotten 108 of them into commercialization. Now,
SBIR is 50 to 70 percent commercialization but there is $600
million the Chinese Government has set up as an, in effect,
venture fund to fund those technologies that they are basically
taking from the United States and developing over there. So it
is heartbreaking. To be honest with you, I mean, SBIR set out
to be U.S. companies, U.S. ownership, and the work done in the
United States. Much government research can be done elsewhere
and seeing our technology go overseas is heartbreaking. It
should not happen.
Mr. PHILLIPS. Right. I could not agree more.
Dr. Tung, I would like to as you, too, about your testimony
highlighting the importance of maintaining venture capital as a
source of outside cash flow for companies that are trying to
secure other forms of early stage capital. Can you elaborate a
little bit on the complementary relationship that you see
between VC and the SBIR program?
Ms. TUNG. Certainly. So I think for us, we have a model in
which our research platform is based upon a consumer research
cohort. About 80 percent of our customers consent to
participate in research. It is those people participating in
research that allows us to have this highly scalable platform.
Now, the SBIR funding funded the research specifically, the
collection of data, the analysis, the publication. However, the
development of the actual online platform itself, all the
design, all the product, all the engineering, all of that was
funded by venture funding. So we could not have done what we
did without the other part of the business having already been
funded. So really, those two pieces had to exist together or we
would not have been able to build what we did.
Mr. PHILLIPS. Okay, thank you. I appreciate.
With my remaining time, if any of you might chime in, I
remember when I was a kid in elementary school, business day
was perhaps one of my greatest forces to have to think about.
Starting a little business, creating, generating revenues,
identifying expenses, selling stock, and marketing. And I just
wonder if you see opportunities in the United States to inspire
younger generations still in school about the possibilities of
entrepreneurship and innovation and are there any programs of
which you are aware that we can go a little further upstream so
that programs like SBIR and others will have an even wider
universe to allocate resources to? Are you familiar with any
programs trying to teach entrepreneurship to kids? Okay.
Ms. TUNG. Well, I actually do have one thing. This may
sound facetious but I actually do mean it seriously. There is a
TV show called Shark Tank in which people are allowed to bring
their ideas in front of a set of investors. But it is not
uncommon that you actually see very young people, teens and
sometimes younger than that, who actually have been inspired by
that show to bring their ideas into businesses. So I think that
sort of thing, making it relevant and part of popular culture
is I think inspiring for a large portion of the community.
Mr. PHILLIPS. And I agree.
All right, well, I am running out of time. I thank you all.
I appreciate this conversation and your testimony. I yield
back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from California, Ms. Young
Kim, Ranking Member of the Subcommittee on Innovation,
Entrepreneurship, and Workforce Development.
Ms. YOUNG KIM. Thank you, Chairwoman. And I want to thank
all the witnesses for being with us today to discuss these
important programs. And thank you, Mr. Phillips, for asking the
question, and for Ms. Tung answering it. Shark Tank is one of
the programs I watch regularly, too.
Getting back to our discussion here, SBIR and STTR programs
are critical tools for small businesses to reach, develop, and
commercialize innovative technologies to create good paying
jobs for increasing our competitiveness abroad.
China and other nations are making concerted efforts to
bridge that innovation gap with the United States and put more
resources to commercialize their own technologies. So we must
not relent our country's position as the world leader on
innovation and the development of new technologies.
So keeping that in mind, I am concerned the Biden
administration has yet to appoint an associate administrator in
the SBA's Office of Investment and Innovation. So I would like
to pose this question for all the witnesses. Considering SBA's
responsibilities under the programs, including agency
coordination, policy guidance and data collection, how
important do you think it is to have an associate administrator
appointed as soon as possible? I know this could be a very
simple yes or no question. Respond very quickly.
Mr. GLOVER. Yes. The Investment and Innovation Office
should report directly to the administrator. Yes.
Ms. YOUNG KIM. Thank you.
Other witnesses, your answer, yes or no, how important is
it to appoint an associate administrator right away? We need
somebody to coordinate these important programs. You agree;
right? Okay.
Well, let me go to the next question.
The Small Business Act requires the SBA to report annually
to Congress on the SBIR and STTR programs but unfortunately,
SBA compliance with this requirement has been an ongoing issue.
So if we do not have the timely reports, it is difficult for
Congress to legislate and improve the programs. So in your
view, what can Congress do to ensure SBA's meeting the
statutory reporting requirements?
Mr. GLOVER. We mentioned in our detailed recommendations in
our testimony making the reports available as soon as the
agency does and put them on their website. In the old days you
had to filter them through. DOD, for example, the services have
to send it to DOD which has to review it, which sends it to SBA
which the SBA has to send it to OMB to review. So there is a
built-in process. There is no reason all that information
should not be put on the web immediately. And so make those
reports in a much shorter timeframe but put it on their own
website immediately.
Ms. YOUNG KIM. All right.
Do you currently, Mr. Glover, do you think that SBA has the
online web portal that makes it easier for different agencies
to put together their report, that way the SBA can put together
an overall report to Congress in a timely manner?
Mr. GLOVER. The review process makes it untimely. So let's
eliminate the review process. Put it on the web, be done with
it, and move on. Right now, we have been working with DOE and
we are looking at inside DOD data. DOE data, we are looking at
things that they do not look at for years but were available--
spending USA track down how many phase threes are being
awarded. What is happening? We did not know that 2 years ago
but SBA could do it as well.
Ms. YOUNG KIM. Thank you. I sense your frustration, sir.
Thank you very much.
Let me direct my last question to Ms. Pat Keady. With our
experience of being women entrepreneurs, can you offer any
advice to other women entrepreneurs who would like to
participate in the SBIR program?
Ms. KEADY. I appreciate that question. And one of the
things that I wanted to mention is that there is a huge funding
gap from venture capital or investors in general for women-
owned businesses. That needs to change. I do not know if that
is government's responsibility but that definitely needs to
change. We start out with a disadvantage. I do not know if it
is a bias or whatnot but there is definitely a gap.
I think when I started my career in the `80s, there were
very few women in aerosol science and now there are lines at
the restroom at the conferences so I think we have made huge
gains in terms of participation in STEM fields. I find that the
field that I am in is very respectful of women. It is a very
comfortable place to be. And so I feel that women should not
hesitate. They just need to jump in.
Ms. YOUNG KIM. Thank you. I know my time is up, so thank
you very much all the witnesses. I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentlelady from Illinois, Ms. Newman,
for 5 minutes.
Ms. NEWMAN. Good morning, everyone, and thank you,
Chairwoman Velazquez and Ranking Member. Great conversation
this morning. Thank you to all our witnesses. Learned a lot and
appreciate our entrepreneurs so much. Having been one I am
thrilled to see progress like this.
And I will also just share a point with Ms. Keady. I agree.
When I was an entrepreneur, I pitched my idea to over 60 VC
firms and there was exactly one woman in the room. Exactly one
across. And that probably meant about 150 people. So we need
more women in entrepreneurial places but also in VC firms I
will add, too.
Turning my attention to Mr. Glover, thank you so much for
your comments today, sir. And really appreciate your
recommendations.
So if I heard you correctly, it sounds like, and I agree
with this because if you read the Wall Street Journal, it is
clear that that is the case, but it sounds like over 80 percent
of current funding goes to tech firms. Is that correct, sir, in
the VC world and PE probably, too?
Mr. GLOVER. Eighty percent goes to telecommunications, the
Internet, healthcare and Biotech. It is on my chart in the
testimony.
Ms. NEWMAN. Okay, sure. So primarily tech? Can we agree on
that?
Mr. GLOVER. Yes.
Ms. NEWMAN. Okay, good. And that is VC and PE funding
probably, too, overall.
So knowing that, is there a possibility that you would be
comfortable recommending and adding to your recommendations
that we look at, on our side of the fence, meaning this
government-based program, balancing that out a bit and
prioritizing things like green technologies, green
infrastructure, those in green building substrates, anything in
the space in the 21st economy, green economy. Do you think that
there is an opportunity to recommend maybe not fully
prioritizing but adding some priority to green-based
technologies as well as women and people of color owned
organizations?
Mr. GLOVER. There has always been a reluctance for the
Federal Government to pick winners and losers when that was
pre-China and pre the rest of the world. When I look at the
Beijing Institute of Collaborative Technology, their focused
areas are robotics, optoelectronics, structural and functional
materials, energy technology, water treatment, and biomedical
engineering. They are giving money in those areas so they are
doing it, and the U.S., we have got to get back in the game. I
am sorry. My answer 20 years ago was different. Today, they are
doing it, we are not.
Ms. NEWMAN. Yes. And I agree 100 percent.
So I encourage you to put a little data behind that and
suggest how we can prioritize a few areas. And certainly green
technologies should be one of them but maybe it is robotics and
others as well to reassert our competitiveness in the
international community. Your initial comments, and I have
certainly read it before, but startling. We have got to assert
our competitiveness again. I think the best way to do it is to
look at a 21st century economy and not look backward, which
would include green technologies and renewables and robotics
and other such things. So I encourage you to include that in
your recommendations. And I appreciate your work on this. And I
appreciate all our entrepreneurs today. And I yield back.
Ms. HOULAHAN. Thank you. The gentlewoman yields back.
The gentleman from Wisconsin, Mr. Scott Fitzgerald is now
recognized for 5 minutes.
Mr. FITZGERALD. Thank you, Madam Chair. I know at this
point there might be some redundancy, so let me apologize for
that in the questions.
To Mr. Glover, you talked a little bit about streamlining
or just fully eliminating specific parts of the process. But so
without sacrificing and without putting into play waste, fraud,
and abuse protections, the elimination of those, is there other
things that, you know, the paperwork burden for small
businesses, as we move forward in technology, we should be
reviewing that on a regular basis and making changes. Is that
right or is this something that most of these small businesses
are able to keep up with on their own?
Mr. GLOVER. When the SBIR program first started, they
limited the proposals to 25 pages. There were virtually no
other rules or regulations. Now, the proposal and the
solicitations that go out have 100 pages of rules, regulations,
and procedures. It has gotten awfully complicated. Our guys do
not like it. The small businesses, especially the new companies
that come into the program have to spend a lot of time trying
to understand it.
Having said that, they are willing to do it because that is
the only way to do it. But should it be simpler? Should we have
an automatic system? Yes. We need to go back to what was there
when we first started. You have got an idea. We will give you
25K. You work hard on it. We will give you another quarter
million dollars if you come back and it seems like it is
working. So yes, the numbers are higher now because of
inflation over time but yes, we need simpler.
Mr. FITZGERALD. That is great. That is helpful. Thank you
very much. And I would yield back, Madam Chair.
Ms. HOULAHAN. The gentleman yields back.
The gentlewoman, Carolyn Bourdeaux from Georgia is now
recognized for 5 minutes.
Ms. BOURDEAUX. Thank you very much.
Georgia is home to countless innovators and companies that
are on the cutting edge of new technologies. Georgia Tech's
Enterprise Innovation Institute provides some critical
expertise to businesses as they seek to bring technology and
research-intensive products to market. And we have many small
business incubators and accelerators that work closely with
Georgia Tech on a variety of different projects.
However, any product that relies on research and
development of innovative technology is likely to have
significant concerns around protecting intellectual property
developed for these projects.
So one question for Mr. Glover is how do small businesses
go about protecting the IP that is developed through these SBIR
and STTR projects?
Mr. GLOVER. One of the beauties of the SBIR program in the
IP area is that they are given their rights to that technology.
And the government cannot disclose that. There are some things
that should be done to tighten that up because we run into
battles and fights on the fringes but the SBIR data rights is
an important provision in there that helps us in many cases.
But you are right. In those cases where the government really
wants it, they demand to have, you give away your rights or we
will not give you the contract. And that happens often, even
though it is in the law they cannot do that. But they still do
that and they do that frequently. So data rights are critical.
Ms. BOURDEAUX. What would you recommend doing to tighten
that up?
Mr. GLOVER. We will get back to you on that with some
specifics. It is becoming more of a problem recently. The Army
especially seems to be really tough on that data rights now.
But some of the services are better than others but it is
critical that you let small business keep their rights so they
can go commercialize it. We know the government labs just do
not do a real good job of commercializing. And small business,
at least if they have got it you have got a chance.
Ms. BOURDEAUX. Thank you.
Do any of the other witnesses have any thoughts on this
matter? Okay.
Moving on to another question. Ms. Keady, did you have
something?
Ms. KEADY. I was just going to say that, again, as an
entrepreneur, there is no free time in our lives. And so all of
these things take time and effort. And IP is extremely
important. We have patents pending right now. Again, it is
helpful to have TABA money to help support some of that funding
but that is just one more thing on our plate that we want to do
right. And so any help we can get is much appreciated. Thank
you.
Ms. BOURDEAUX. Got it. I appreciate it.
I just want to follow up on one other issue that came up
earlier which was that after the venture capital phase
launching to a larger business often proves very challenging.
But I know that there are programs. There are tax credits.
There are Federal programs out there to help move into that
next sort of midsized business phase.
And I wanted to check with you, Mr. Glover. Do you have any
thoughts about those kinds of programs and whether there is
anything more we can do to enhance and help women-owned
businesses, minority-owned businesses, but just businesses in
general make that next leap?
Mr. GLOVER. The problem with R&D credits is that you have
to have a profit to be able to use it. To be honest, our guys
do not make profits for a long time. Sometimes never. And so
those R&D credits really do not help you. And the R&D credit,
if you could sell it or transfer it to somebody who has money
and you get some cash for it, some of the states have programs
like that that work.
But, look, we have done so little to help entrepreneurs in
the innovation space. There is a whole bunch of things that we
should have done and we certainly can do. And right now in the
competitive world we are in, we need to rethink everything we
are doing. We need to come up with brand new ideas knowing why
are we still giving less than 10 percent of Federal R&D dollars
to the most innovative sector of small business? Why is SBIR
primarily the only program that really focuses on helping small
business? It is outdated thinking. We are now in a situation
where the world has passed us and that is happening over and
over again and we have got to come up with new ideas and a new
approach.
Ms. BOURDEAUX. Thank you very much. I agree.
I yield back the balance of my time.
Ms. HOULAHAN. The gentleman yields back.
The gentleman, Pete Stauber from Minnesota, is now
recognized for 5 minutes.
Mr. STAUBER. Thank you, Madam Chair.
As with every government program, finding success is not
always easy. When I first got to Congress, I assisted a small
business obtain feedback from the Air Force regarding an SBIR
application denial. They were never able to get a straight
answer before my involvement but I was certainly happy to get
things cleared up.
I think this leads me to a question that any of our
panelists can feel free to answer. Do some agencies provide
better feedback to their applicants than others? Or more
generally, do you feel that certain agencies make it easier for
participation than others? Any of the panelists.
Ms. KEADY. I just want to say in particular I am thinking
about some of the NIH reviews. It is really a bit of a crap
shoot as to who your reviewers are as to what kind of scoring
or feedback you get. And so while I think it is really good to
have outside experts reviewing these proposals, sometimes we
get faulty information. I can say one time where we submitted a
proposal, it was not quite in the pay line, and so we
resubmitted addressing all of the reviewers' concerns and we
got a worse score the next time. So that was a little bit
frustrating.
Mr. STAUBER. To that point, tell me what we can do to
eliminate that issue. What is your solution?
Ms. KEADY. That is a great question and I will have to
think about that.
Mr. STAUBER. Okay.
Ms. KEADY. I do not have an innovative answer.
Mr. STAUBER. No, that is fine. It was not a trick question.
Those are some things that are important for us to hear to be
able to change the regulations or rules to have the ability to
accommodate more so.
And then I also have the question, do you think
standardization of paperwork requirements across agencies would
help or increase population of small businesses and make them
more likely to succeed? So the standardization of paperwork and
maybe the vast majority of the process? And this is for any of
the panelists.
Mr. GLOVER. It would definitely help. The challenge for new
companies, to make a short, simple claim, you will get more
people participating in the program and you will have them
spend more time on the science and less time on the paperwork.
So the more you can standardize and simplify everything in the
SBIR process, go back to the way it was early on, you are
right. Yes. It is critical. It would be very helpful.
Mr. STAUBER. Okay. Any other panelists?
Ms. KEADY. Again, I am going to bring up a challenge, not
necessarily a solution, but I think the success in winning
grants is very much in a person's ability, or a team's ability
to tell a good story. And so there is a certain amount of skill
in just writing the grants. And this does not necessarily, you
know, what about the company who has a great idea but is not as
skilled at writing or telling the story? I would hope that
there is a way for those companies to also get to participate.
Mr. STAUBER. That is an excellent point. We are seeing some
of the bigger companies hire grant writers and people that
specialize in that which would give them obviously a better
opportunity, and we are looking for that small business who may
not have the capital to hire an individual like that. So that
is a great point and we cannot forget that. These grants, we
have to really have them open and available for our small
businesses. Thank you for bringing that up.
Thank you to all the witnesses. And Madam Chair, I yield
back.
Ms. HOULAHAN. The gentleman yields back.
And I now recognize myself for 5 minutes.
My community is just outside of the city of Philadelphia.
I, as well, am an entrepreneur with a technical background.
And my first question is for Ms. Keady. With your
testimony, and actually also with many of the other folks'
testimony, you have spoken about hiring an outside investor to
help with the cost of commercialization for your business. In
your experience, does the SBA offer resources for business
owners who seek commercialization? Did the SBA offer your
business any assistance on how to ensure commercialization on
your aerosol devices?
Ms. KEADY. I know that NIH and NSF have had programs where
they have a meet the investor kind of thing. But again, you
know, it takes time to write the executive summaries, the pitch
deck, to create the videos. And we have had no real strong
connections. It is helpful in just honing our message and
thinking about what we would want to say to an investor. So I
know they are trying.
One of the things that we have found, and maybe it is our
industry, is that investors do not necessarily value grants.
What they want is traction in the market. And so it is that
getting to market and having real customers and having real
success is what attracts investors. Just having grants, you
know, yay, good for us, but it is not the magic bullet for
getting an investor.
Ms. HOULAHAN. Yeah. And if I could follow up on that,
largely what my role has been in all the entrepreneurial
ventures that I have participated in has been the operator, the
person who does operationalize the idea. And so I do recognize
how important it is. And in fact, that is why I introduced a
bill with Mr. Balderson, Rhett Balderson, and it is called the
RAMP for Innovators Act. And it takes exactly about all of the
things that we have been talking about this time around.
Whether it is help with commercialization, whether it is help
with IP and patents, it is those things that are the things
that bog us down as entrepreneurs, that make us struggle with
the next level of investment.
And so I would love if I could ask you guys to share your
experience. What worked and what did not? What would you share
in terms of legislative ways to ensure that the SBIR and STTR
investments are leading to commercially-viable products or
services and that next level of investment?
So if I could, I would turn that back to you, Ms. Keady,
and then to anybody else who might have input in that.
Ms. KEADY. Well, I would have to say that we are early in
our journey in seeking an investor. And so I do not have a
success story yet. But I am very interested in learning what
other people have done.
Ms. HOULAHAN. Could I ask Dr. Tung if she might be able to
give us some ideas of what has worked and what has not worked
in the commercialization area and how we could be more helpful
here in this body?
Ms. TUNG. I think for us, to some of the comments earlier,
biomedical research takes a long time. A lot of these grants
have a term of like a year, year and a half, and it is very
easy for a research project to last 3, 5 years. And so that is
one of the reasons why you do have to kind of look at trying to
get grant funding over a long period of time. And I think that
was critical. It took us a long time and a lot of proof of
concept of what we were doing was high quality before we got to
a point where there were outside groups who were willing to
either pay us for our services or our products or invest in
that part of the business.
Ms. HOULAHAN. And Ms. Todd, do you have anything that you
would like to contribute here?
Ms. TODD. I would just say as a support organization for
these innovative small businesses, we always encourage
scientists to be able to articulate the value proposition of
what they are bringing to the marketplace as early as possible
rather than focusing so much on the technical aspects that
maybe they are naturally more comfortable with. So we
definitely help them to think through those processes, through
our consulting services. Also, as part of that we have market
research that allows us to dig pretty deep into potential in
terms of long-term market potential, what the competition is
looking like, demographics of their customers. I think all that
feeds into helping them tell a good story about the
commercialization opportunity when they fill out these
applications.
Ms. HOULAHAN. I only have 15 seconds and I appreciate all
of your time. I guess my struggle is it is not about just the
story; it is actually about the execution on the story and
actually operationalizing things and actually getting patents
and IP protected our hard processes. And that is indeed what
the RAMP Act that we are trying to push forward is addressing.
I appreciate your time and I yield back.
And I think I am supposed to be recognizing Mr. Schneider.
And so the gentleman from Illinois, Mr. Schneider, is now
recognized for 5 minutes.
Mr. SCHNEIDER. Thank you, Madam Chair. And I want to thank
the witnesses for sharing your perspectives today on this
critically important issue.
Small businesses are the engine of our economy. As you said
a moment ago, Mr. Glover, they are what drive innovation in our
economy and it is critical that we support them. And that is
why having this hearing is so important.
While the programs we talked about today have always been
critical, they have special significance as we focus on the
economic recovery post COVID-19. This has undoubtedly been a
difficult year for small businesses and for all Americans. With
vaccines being distributed throughout the country and
restrictions being lifted, it is time to look towards the
future. Small business innovation will be a key driver of
economic recovery as we seek to tackle new economic challenges,
get people back into the workforce, and adapt to the changes
brought on by the crisis.
I have heard from businesses all over my district about the
lengths they have gone to just to stay afloat. These programs
are instrumental in giving small businesses necessary R&D
capital to innovate which they often lack prior to the pandemic
but which for many is totally out of reach now. Knowing how
important SBIR and STTR, I have advocated in the past for
allowing firms more flexibility in spending and for continued
funding of these programs.
Ms. Keady, you talked about your recent experience as a
business owner, developing new technology using SBIR/STTR funds
and the limitations in using funds to launch the program. Can
you talk more about what you could do with a more flexible
spending structure, as well as how challenging the road to
profitability was under the current restrictions?
Ms. KEADY. Well, we were in the fortunate position of
having a product, albeit in a prototype stage, but having a
product that was immediately useful for addressing the COVID
pandemic for researchers in trying to determine whether or not
the virus was airborne transmitted. And so we benefitted this
past year in selling to researchers. So for us the challenge in
terms of flexibility of spending is the SBIR programs by and
large just fund R&D. And so I think for us, having more
flexibility, and especially some of the phase one grants having
higher overhead rates so that we could hire help to do some of
these other things. As entrepreneurs, we end up doing
everything ourselves most of the time because we just do not
have the staff. And so having more flexibility in how the money
is spent would be helpful.
Mr. SCHNEIDER. Great. Thank you.
I do not know if any of the other witnesses want to share
your perspective on that?
With the time that is left, and maybe I will start with Mr.
Glover, from experience, if you were to pick one, two, maybe
three things that we can do to have the biggest impact as we
begin this recovery and get to the other side of the pandemic,
what would you have us do?
Mr. GLOVER. I think I would first set a goal for small
business R&D of the Federal R&D dollars. We are spending a lot
of our R&D dollars and have historically with other
institutions, large firms, labs, and universities, and small
business is the innovator and we send such a small share there.
SBIR is primarily the majority of that money. So that would be
the first thing.
I think when we talk about paperwork, we could set a rate
of return for small business of say 15 percent. We go in and
fight on what the profit level is going to be on contracts and
that wastes time, 7, 8, 9 percent. But the regs say you can go
up to 15. Just automatically set that at 15. Eliminate some
paperwork there. I think that governing the SBIR program would
mean twice as many companies would be able to participate and
fund their technology and make it move forward.
I think the STTR program, the universities are challenged.
Seventy percent of their technology is licensed to small
business. Less than 1 percent does over a million bucks. STTR
should work. Make the STTR program as big as the SBIR program
so that you get universities and have the labs participate and
have a path to get their technology out of the universities,
out of the laboratories. Team them up with a small business
with a business plan that goes forward.
I think those things would all be helpful. I am quite
frankly concerned with the elimination of capital gains. Taxes
will remove an incentive for entrepreneurship. I would focus it
just on small business, just on businesses in commerce, but
capital gains for small business, especially technology
businesses should stay.
So those are some things off the top of my head that would
be meaningful.
Mr. SCHNEEIDER. I have gone over my time. Thank you. I am
sorry I could not get to the other witnesses. But to everybody,
thank you for sharing your time today. I very much appreciate
it. I yield back.
Ms. HOULAHAN. The gentleman's time is expired and the
gentleman yields back.
Thank you again to our witnesses for joining us today. Your
testimony is proof positive of what small businesses can create
when they receive investment and support. Our country has a
long way to go when it comes to reclaiming our title as the
world's most innovative Nation. We must examine the programs
that have driven innovation in the past and work to empower
them. The SBIR and STTR program has decades of demonstrated
positive return on investment and funding of groundbreaking
technology.
And if there is no further business to come before the
Committee, we are adjourned.
[Whereupon, at 12:56 p.
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