[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
EXPLORING SBA PROGRAMS: REVIEWING THE
SBIC AND SBIR PROGRAMS' IMPACT ON SMALL
BUSINESSES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX, AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
APRIL 16, 2024
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-047
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
55-251 WASHINGTON : 2024
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HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
CELESTE MALOY, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MARIE GLUESENKAMP PEREZ, Washington
SHRI THANEDAR, Michigan
MORGAN MCGARVEY, Kentucky
HILLARY SCHOLTEN, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Dan Meuser.................................................. 1
Hon. Greg Landsman............................................... 3
WITNESSES
Mr. Angelo Valletta, President and Chief Executive Officer, Ben
Franklin Technology Partners of Northeastern PA, Bethlehem, PA. 6
Ms. Amanda Bresler, Chief Strategy Officer, PW Communications,
Rockville, MD.................................................. 7
Mr. Brett Palmer, President, Small Business Investor Alliance,
Washington, DC................................................. 9
Mr. Jere W. Glover, Executive Director, Small Business Technology
Council, Annapolis, MD......................................... 11
APPENDIX
Prepared Statements:
Mr. Angelo Valletta, President and Chief Executive Officer,
Ben Franklin Technology Partners of Northeastern PA,
Bethlehem, PA.............................................. 24
Ms. Amanda Bresler, Chief Strategy Officer, PW
Communications, Rockville, MD.............................. 45
Mr. Brett Palmer, President, Small Business Investor
Alliance, Washington, DC................................... 36
Mr. Jere W. Glover, Executive Director, Small Business
Technology Council, Annapolis, MD.......................... 165
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
MITO Material Solutions Letter............................... 182
EXPLORING SBA PROGRAMS: REVIEWING THE SBIC AND SBIR PROGRAMS' IMPACT ON
SMALL BUSINESSES
----------
TUESDAY, APRIL 16, 2024
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax, and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:12 a.m., in
Room 2360, Rayburn House Office Building, Hon. Daniel Meuser
[chairman of the Subcommittee] presiding.
Present: Representatives Williams, Meuser, Landsman, Chu,
and Davids.
Chairman MEUSER. Okay. Ladies and gentlemen, we are ready
to get going in our Small Business Committee hearing.
Before we bang the gavel and being our proceedings, I want
to recognize the Chairman of the full committee, Roger
Williams, to lead us in the pledge and the prayer.
Mr. WILLIAMS. Please rise.
Heavenly Father, God of all people, thank you for allowing
us to be here today to do what we can to preserve the greatest
country in the world we love to call the United States of
America. Let us remind of the Book of Romans. It says we all
bring different things to the table. We all have opportunities
to do great things, put it together and make it work. But you
have to come to the table. I hope we do that today. In your
name, we pray. Amen. Join me in the pledge.
I pledge allegiance to the flag of the United States of
America and to the Republic for which it stands, one nation
under God, indivisible, with liberty and justice for all.
Chairman MEUSER. Thank you, Mr. Chairman.
So, good morning, everyone. We now call the Committee on
Small Business to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
I now recognize myself for my opening statement.
Again, we want to welcome everyone to today's hearing,
including the Ranking Member. And, first, I do want to thank
our witnesses for joining us here today. Your time is very much
appreciated, and we look forward to your testimonies.
Today, our committee, the Subcommittee on Economic Growth,
Tax, and Capital Access, will focus on the current function and
future of the both the SBIC and SBIR programs. Unlike large
corporations, small businesses don't share the luxury of
utilizing debt and equity markets for financing. Main street is
instead forced to bridge the funding gap and utilize resources
like SBIC programs where federal funding is matched with
experienced private investors at no risk to the American
taxpayer.
An SBIC is a privately owned company that is licensed and
regulated by the SBA. SBIC has raised capital to invest in
small businesses in the form of debt and equity. The SBA
doesn't invest directly into small businesses, but it does
provide matching funds in the form of loans to qualify at SBICs
with expertise in certain sectors or industries. Those SBICs
then use their private funds, along with the SBA guaranteed
loan, to invest in small businesses.
Through the SBIR and STTR programs, main street is also
given the ability to develop and commercialize new products
from both government and private sector. For example, SBIR
works by infusing federal R&D dollars in phases to small
businesses, developing new ideas that align with the needs of
the federal agency.
Federal agencies can offer SBIR and STTR awards by either
requesting a product that meets specific requirements or by an
open topic in which small businesses propose innovative
solutions to meet an agency's mission. The flexibility of open
topics allows small businesses to propose new solutions that
help agencies meet their mission.
The access to and utilization of these two programs is
essential to helping many small businesses navigate economic
challenges set upon them by Bidenomics and some what one might
describe as wasteful, excessive government spending. As we
know, it is more expensive than ever to do business because of
high interest rates, persistent inflation, and newly proposed
banking regulations, such as Basel III, which have forced
banks, as we speak, of all sizes to tighten commercial lending
standards.
In order to ensure small businesses have continued access
to capital, this committee must work to reauthorize the SBIR
and STTR programs expiring at the end of next September. Our
first duty is to address challenges within the program and
explore various solutions that were left on the table during
the program's last reauthorization.
As leading voices for main street, it is our job to work to
ensure our nation's job creators have an economic and
regulatory environment they cannot only survive but thrive in.
Reauthorization is crucial but not without necessary
adjustments regarding flaws, like the current CCP infiltration
into the SBIR program.
During 2022 SBIR and STTR reauthorization, Democrats did
not consider the threat China posed in the SBIR, STTR as a
serious concern. Republicans successfully fought to combat
Chinese infiltration by requiring agencies to develop a due
diligence program. While this program has since assessed
security risks, Congress has an opportunity to address
weaknesses in the due diligence efforts as their effectiveness
is further evaluated.
As we look to the future of the SBIC and the SBIR and STTR
programs, one thing remains abundantly clear: We must continue
to fight for main street and work to empower our job creators
with commonsense, regulatory relief, and reliable methods of
access to capital. These businesses, especially those
developing innovative products for federal agencies, work to
advance everything from our national security to our education
system. We rely on them and their innovation to ensure the U.S.
remains a global leader for products across the board.
Prioritizing their success and continually motivating their
output is essential to America's continued advancement.
With that, I will now yield to our Ranking Member, Mr.
Landsman.
Mr. LANDSMAN. Thank you, Mr. Chair, and thank you for
holding this very important hearing.
And thank you to all of our guests for being here. Your
time is very important, and we truly appreciate your
perspective and advice.
The hearing really couldn't have come at a better time. We
are seeing a record surge in new startup activity, and it is
happening at this really important point in our nation's
history. We are working, as the Chair said, to evaluate,
reevaluate, in some instances, the role of our startups in the
global supply chain and the way in which we source products
that are critical to our economy and our national security.
We all know that innovation is a catalyst for economic
growth and resilience, and oftentimes the most innovative ideas
come from our startup communities. However, these startups
often struggle to grow their ideas and be part of the economy
because they just don't have the capital that they need. It
takes time and money to turn their innovations into real
products.
To help, we have prioritized investing in these new
startups through important programs at the SBA. The SBA's
office of investment and innovation houses two of these
programs that we are talking about, the SBIC and the SBIR.
Together, these programs help startups research and develop new
products and help high-growth companies and disadvantaged
communities access private equity capital to grow and scale
their businesses.
Let's start with the SBIR program, which creates this
partnership between federal agencies and startups to develop
technologies to support our economy and national security. This
program uses a small percentage of research and development
spending through highly competitive grants. This program has
helped startup businesses like 23andMe, Sonicare, LASIK, and
could bring many more promising ideas to the marketplace.
In the fiscal year 2020 alone, these programs backed more
than 4,000 small businesses and 7,200 projects. But developing
technology is only the first step as many businesses with great
products face other reasonable barriers to funding. That is why
Congress created the SBIC program in 1958 to enhance small
business access to patient capital.
Under this program, the SBA works with and licenses private
institutions to provide financing to small, high-growth
companies. In the past, these investments have acted, believe
it or not, as a lifeline to firms that have changed the course
of history, companies like Apple, Costco, Federal Express, and
Intel. Now there are over 300 SBICs. In 2023, they provided $8
billion to over 1,200 startups. This helped create and keep
more than 130,000 jobs.
Despite the overwhelming success of these programs, some
modernizations need to be made. Just last year, the SBA
finalized the SBIC investment diversification and growth rule.
The rule updated the program and created two new types of SBICs
to create greater flexibility in investment repayment
opportunities for firms that may not have fit under the
traditional rules.
We are also just over a year away from another
reauthorization of the SBIR program. It is my hope that we work
together in a bipartisan fashion to address gaps in the program
like better serving women and minority owned businesses that
have unfortunately been left out of the program in the past.
Once again, I would like to thank the Chairman for holding
these hearings, as well as the witnesses for being here today.
I look forward to a productive conversation about the state of
these programs and hearing ideas to strengthen them, and I
yield back.
Chairman MEUSER. Ranking Member yields back.
I now recognize the Chairman of the full committee from the
great State of Texas, Chairman Roger Williams, for an opening
statement.
Mr. WILLIAMS. Well, thank you, Mr. Chairman.
And good morning to everyone here today. I want to thank
Chairman Meuser for holding today's subcommittee hearing that
will examine the impact and effectiveness of the SBIC and the
SBIR programs.
Main street. Main street is faced with a continuing
disadvantage when it comes to accessing capital. With burdens
and regulations and high interest rates, banks are being forced
to tighten their lending standards, and when this happens,
small businesses are often the ones forced to pay the higher
price to much needed funds. This is where the SBA steps up to
fill these gaps. Through the SBIC and the SBIR programs, main
street is able to access funds that will help them grow and
expand their operations. These programs have proven to be
successful for a wide variety of businesses in almost every
industry.
As the authorizing committee of both of these programs, it
is our duty to evaluate what is working and what could be done
better to ensure that they are helping as many entrepreneurs as
possible. I am looking forward to hearing directly from our
witnesses today and appreciate all of them being here so we can
learn from their firsthand experiences in navigating the SBIC
and the SBIR programs. So I want to thank all of our witnesses
for being here, for coming here on your own time, and to be
with us.
And, with that, I yield back the balance of my time.
Chairman MEUSER. Thank you, Chairman.
I will now introduce our witnesses. Our first witness here
with us today is Mr. Angelo Valletta. Mr. Valletta is the
president and CEO of Ben Franklin Technology Partners of
Northeastern Pennsylvania--I know that neck of the woods a
little bit--located in Bethlehem, Pennsylvania. Since 2021, Mr.
Valletta has been with Ben Franklin Technology Partners of
Northeastern Pennsylvania, which provides investment capital
and business support services to both technology startups and
established manufacturers.
Prior to his current position, Mr. Valletta held several
executive leadership roles at FIS Global, one of the largest
fintechs in the world. He also served as senior vice president
and chief bank operations and information officer at Sun
National Bank. Mr. Valletta earned his bachelor of business
administration from the Fox School of Business at Temple
University before going onto his master of business
administration from Philadelphia university.
Thank you for joining us here today.
Mr. VALLETTA. Thank you, Mr. Chairman.
Chairman MEUSER. Our next witness is Ms. Amanda Bresler.
Ms. Bresler is the chief strategy officer of PW Communications,
located in Rockville, Maryland. PW Communications provides
full-service proposal preparation, contract performance, and
strategic business development support to companies. At PW
Communications, Ms. Bresler has used government data to analyze
the impact of federal procurement programs, including SBIR on
small businesses.
Ms. Bresler currently serves as the global board of
directors for AlmaLinks, a global community that connects
Jewish CEOs, founders, and seasoned executives to business
leaders from Israel and around the world. Ms. Bresler attended
the Georgetown University McDonough School of Business, from
which she earned her degree in marketing.
Thank you for joining us here today.
Our next witness with us is Mr. Brett Palmer. Mr. Palmer is
the president of the SBIC Alliance, Small Business Investor
Alliance, located here in Washington. For over 15 years, Mr.
Palmer has served as president of the Small Business Investor
Alliance, which does represent a variety of funds investing in
American private small businesses, including the SBIC companies
and private equity funds.
Prior to his current position, Mr. Palmer was managing
director of government relations for the National Association
of Insurance Commissioners, as well as an Assistant Secretary
of Legislative and Government Affairs and Deputy Assistant
Secretary for Trade Legislation in the U.S. Department of
Commerce. Mr. Palmer was recently appointed to the Small
Business Administration's Investment Capital Advisory
Committee. Mr. Palmer earned his degree in history from
Davidson College.
Thank you very much for joining us today.
I now recognize the Ranking Member from Ohio, Mr. Landsman,
to briefly--you don't have to be so brief--but introduce our
last witness appearing before us today.
Mr. LANDSMAN. Thank you, Mr. Chairman.
Our final witness today is Mr. Jere Glover, the executive
director of the Small Business Technology Council, SBTC, a
trade association of small, high-tech companies, most of whom
are involved in the Small Business Innovation Research, or
SBIR, Program. Mr. Glover is considered one of the fathers of
the SBIR program. As counsel to the House Small Business
Committee, he directed and organized a set of hearings on small
business and innovation that led the groundwork for the program
in 1978. Throughout the law's existence, he has been one of its
most active supporters.
Mr. Glover has a unique blend of public and private sector
experience. For more than 6 years, he was the federal
government's lead defender of small businesses in the
regulatory process in the private sector. He has been the CEO
or principal of a biotech company, a medical technology
company, and a group of medical clinics. He obtained his
undergraduate and law degrees from the University of Memphis
and an LLM in administrative law and economic regulation from
George Washington University.
Thank you, Mr. Glover. We look forward to your testimony.
Chairman MEUSER. Well, before recognizing the witnesses for
your opening statements, I would like to remind you all that
your oral testimony is restricted to 5 minutes in length. If
you see the light turn red in front of you, it means your 5
minutes have concluded and you should wrap up your testimony.
If you start hearing this, it means you should really consider
wrapping it up, because I don't want to have to wrap this too
hard, all right.
I do now recognize Mr. Valletta for his 5-minute opening
remarks.
STATEMENTS OF ANGELO VALLETTA, PRESIDENT AND CEO, BEN FRANKLIN
TECHNOLOGY PARTNERS OF NORTHEASTERN PENNSYLVANIA; AMANDA
BRESLER, CHIEF STRATEGY OFFICER, PW COMMUNICATIONS; BRETT
PALMER, PRESIDENT, SMALL BUSINESS INVESTOR ALLIANCE (SBIA); AND
JERE W. GLOVER, EXECUTIVE DIRECTOR, SMALL BUSINESS TECHNOLOGY
COUNCIL (SBTC).
STATEMENT OF ANGELO VALLETTA
Mr. VALLETTA. Good morning, Chairman Williams, Chairman
Meuser, and the esteemed Members of the subcommittee. I am
Angelo Valletta, president and CEO of Ben Franklin of
Northeastern Pennsylvania and Chair of the Ben Franklin
Technology Partners. I am honored to be here today to testify
today about the SBIR and SBIC programs' impact.
Ben Franklin has been investing in supporting early-stage,
technology-focused startups, innovative manufacturers, and
technology incubators for over 40 years and generates $4 for
every $1 invested and has supported SBIR and SBIC programs for
many years. These programs are often referred to as America's
seed fund. These programs are a valuable source of capital to
help small businesses commercialize research into useful,
launchable products and services.
Ben Franklin has supported these companies through our
statewide program called Innovation Partnership, IPart for
short. Pennsylvania companies have been successful in
leveraging SBIR programs with PA ranking seventh among
participating States. PA's IPart assists primarily first-time
SBIR applicants and has a 28-percent success rate versus the
national average of 18 percent. Our relationship with SBIC
program is program in partnership with licensed SBIC firms. We
have invested in SBICs, evaluated SBIC licenses, and leveraged
separate for-profit funds.
Regulations have limited the use of the SBIC program for
early-stage investments. We believe the SBIR and SBIC programs
are valuable resources to grow small businesses that translate
into highly paid sustainable jobs for the communities that we
serve.
SBICs use a rigorous analysis of managers' backgrounds and
investing experience and an evaluation of the fund's investment
thesis, strategy, and structure. The application process to
secure an SBIC license can be lengthy and difficult, but it has
many benefits. Pennsylvania's SBICs have invested in 84 PA
companies in the last 15 years. Of these investments, 81 were
at mezzanine, debt, private equity, or other later-stage
capital facilities, but only three deals by the same investor
were in early-stage funds.
Last year, SBA overhauled aspects of the SBIC capital
regulations. SBA made several positive revisions to renew the
approval process for new SBIC applicants, such as expanding
capital, considering the fund's management team's expertise in
capital activity, are open to smaller SBIC investments, and,
finally, have lowered its fees and streamlined the committee
review for newer program applicants. These positive reforms are
significant improvements to the SBIC program, and as such, Ben
Franklin is considering an SBIC license for its GO PA Fund.
Ben Franklin is happy to see SBA implementing the
alternative funding structures to supply additional capital for
early-stage indexing. However, several hurdles remain: SBICs
are required to be for-profit; the size of over 3 million can
still be a challenge; and, finally, the limitation of
leverageable capital could be better defined.
SBIR and STTR programs are referred to as the nation's
largest source of early-stage, high-risk funding for startups
and small businesses. Again, PA ranking seventh in the amount
of SBIRs awarded annually--in the last 5 years, over 1,200
companies receive Phase I and Phase II awards, totaling nearly
$850 million in funding, and the Ben Franklin network investing
in nearly 25 percent of them, with 27 invested by our IPart
program.
There is merit to having the SBIR and STTR awards
distributed by a rigorous proposal process, but there is some
room for improvement. With over 20 years of assisting small
businesses seeking awards, IPart assists many clients
submitting proposals for funding. SBIR and STTR agencies could
require a similar preliminary, Phase I, presubmission, project-
focused document for agency-specific vetting and could be
standardized to streamline the application experience and to
avoid duplicate proposal submission.
Furthermore, SBA could coordinate solicitation registration
requirements and timing of feedback for a single information
channel that would significantly enhance the experience of
companies seeking awards, increase the number of companies
seeking SBIR and STTR awards, and would likely improve the
submissions' quality.
I thank you for your time, and I look forward to your
questions.
Chairman MEUSER. Thank you very much.
We now recognize Ms. Bresler for her 5-minute opening
remarks.
STATEMENT OF AMANDA BRESLER
Ms. BRESLER. Chairman Williams, Chairman Meuser, Ranking
Member Landsman, and Members of the subcommittee, thank you for
the opportunity to testify today. My name is Amanda Bresler,
and I am the chief strategy officer for PW Communications. My
firm has won SBIR awards from the Department of Defense, and I
have published five independent research papers analyzing the
impact of federal procurement policies, including the SBIR
program, on small businesses.
The SBIR program is marketed as a way for innovative small
businesses to break into the public sector, yet most SBIR
funding goes to existing government contractors. Task a group
of the world's most accomplished entrepreneurs with identifying
and responding to a Phase I, and you will understand why. The
process is so arcane that, irrespective of IQ or business
acumen, it is nearly impossible for an outsider to navigate.
Many small businesses forego SBIR entirely. Others hire
SBIR advisory firms to manage the process in exchange for a
percentage of the award funding. It is also why a handful of
companies win the lion's share of SBIRs. A recent GAO report
showed that a mere 22 companies, less than 1 percent of all
SBIR participants, won more than $3 billion in SBIR funding
between 2011 and 2020, roughly 10 percent of the entire SBIR
budget.
The program is designated for small businesses, yet some of
these entrenched SBIR companies generate hundreds of millions
in government contracting revenue annually, and some are even
publicly traded. Both we and the GAO found that these
entrenched SBIR companies don't necessarily transition at
higher rates. One firm we analyzed won over $320 million in
Phase I/Phase II funding and has generated only $10 million in
Phase IIIs.
The SBIR program isn't held accountable for meeting
explicit intragovernmental transition goals. So these large
SBIR companies that understand the system aren't incentivized
to transition; they are incentivized to pursue more SBIRs.
However, for the truly small companies that do manage to break
into the program, it is often with the expectation that good
performance will translate into follow-on government contracts.
Yet the program rarely positions them for success in the
broader federal market. They don't receive the resources or
guidance needed to identify transition partners.
Sam.Gov is poorly designed and has archaic search
functionality. It only searches for exact terms within the
title and description fields, not the attachments, which is
where government stakeholders often outline their needs.
In 2021, we analyzed the readability of over 1 million
archived solicitations, and less than 4 percent were written in
plain English, meaning small companies can't even wrap their
heads around what the government is looking for. Similarly, 70
percent of the analyzed solicitations required responses within
21 days of when they were posted, and 30 percent within 10 days
or less.
Ultimately, the only way for most small SBIR companies to
win follow-on contracts is if they pay to play. Compounding
this challenge, government stakeholders rarely receive
information about the SBIR-funded projects within their branch,
let alone what is being funded externally. You can't expect
capabilities to transition if prospective transition partners
don't know they exist.
To address these issues, I offer the following
recommendations: Overhaul the SBIR submission process so that
small, nontraditional companies can compete. Mandate that a
share of Phase Is be awarded to companies with no prior
government business.
If the SBIR program is intended to serve small businesses,
eligible companies should be small. Limit the SBIR program to
companies with $40 million or less in total annual revenue.
Make it easier to identify and bid on government contracts.
Redesign Sam.Gov, improve its search functionality, require
solicitations to be written clearly, and give companies at
least 30 days to respond.
Prioritize and incentivize transition. Mandate that SBIR
must meet minimum intragovernmental transition goals. Establish
a set-aside program requiring government stakeholders and prime
contractors to allocate a share of contract dollars annually to
SBIR companies who pass a rigorous assessment of technical
merit at the end of their Phase II. Provide greater incentives
for integrating capabilities initially funded by a different
branch. These recommendations stand to benefit small businesses
and government. They will make the program more open and
competitive, and encourage wider adoption of SBIR-funded
capabilities.
Thank you again, Chairman Williams, Chairman Meuser,
Ranking Member Landsman, and Members of the subcommittee, for
the opportunity to speak.
Chairman MEUSER. Thank you very much.
We now recognize Mr. Palmer for his 5-minute opening
remarks.
STATEMENT OF BRETT PALMER
Mr. PALMER. Good morning, Chairman Meuser, Chairman
Williams, Ranking Member Landsman, and Members of the
committee. Thank you for the opportunity to testify today. My
name is Brett Palmer. I am president of the Small Business
Investor Alliance. Since 1958, SBIA has been the champion of
small business investment companies, America's original venture
capital and private equity funds.
Our association's purpose is to support the entire small
business investing ecosystem, and our policy goals are focused
on maintaining a robust, healthy, and competitive market. Our
Members help small businesses grow, and they are rightly proud
of what they do and how they do it, and they are proud of the
benefits that their actions have on the people and their
communities where their businesses are located.
SBICs are an American success story, an example of
successful public policy that aligns the power of private
markets with the public interest of job creation, economic
growth, and global competitiveness. Over the years, SBICs have
made over 200,000 investments, totaling over $130 billion,
creating millions of American jobs. And SBICs provide many
types of capital, including growth equity, minority equity,
control equity, mezzanine and private debt, as well as some
venture capital and venture lending, and more of that is
coming.
SBIC investments are often the first institutional capital
to ever be deployed into the small business. Further, once SBIC
capital is invested into a small business, then the small
business is able to access more conventional bank capital.
Small businesses that receive SBIC investments have grown into
icons of American industry, including Federal Express, Apple,
Intel, Callaway Golf, and many others.
While these are known globally, many more that were backed
by SBICs have grown from smaller businesses into robust,
sustainable, midsize businesses. For example, Drug Free Sport
International, based in Kansas City, Missouri, they provide
drug-testing services that keep athletics fair and safe. Their
employment grew 242 percent after the SBIC investment, with
their sales growing by 143 percent.
JSI Manufacturers, in Milo, Maine, they sell grocery store
displays. They doubled their employment to over 200 employees
in a town with a population of around 2,000. Hart Systems in
Hauppauge, Long Island, a provider of inventory management
systems, they increased their employment 77 percent from 69 to
122. And Behavioral Innovation Systems in Dallas, Texas, was
founded by three clinicians, two of whom were women. They
provide therapy to children with autism, and they now help
thousands of children across Texas, Oklahoma, and Colorado, and
now have over 2,000 employees.
The SBIC Program is a private capital amplifier. Most SBICs
are leveraged funds, which means those SBICs are able to borrow
money from an SBA credit facility. The private sector leads,
and the SBIC leverage follows and amplifies. Individual SBICs
can reinforce their private capital with up to two tiers of
leverage or $175 million in capital, whichever is less. And I
want to stress, this leverage is provided at zero subsidy to
the taxpayer, and SBICs pay it all back plus interest and fees.
For all companies, small businesses in particular, access
to capital often determines success or failure. And the private
capital markets are tight right now, and they are particularly
tight for small businesses due to higher interest rates, and
SBICs are filling some of the capital gaps with record
investments that have been--that we have done in recent years.
SBA has made several recent major reforms and has several
initiatives to increase equity capital and to diversify the
type of investors that can become SBICs. Further, SBA recently
announced the Critical Technologies Initiative, which is a
partnership with the Department of Defense. This is using SBICs
to increase investments in small businesses in critical
national security industries and supply chains, not necessarily
government contracting, just businesses that--industries we
want here.
Now, there is several policies that we encourage Congress
to support, and the first one I am going to actually thank you
all for voting for, because everyone here did vote for it. You
voted for the Investing in Main Street Act, which passed the
House with overwhelming bipartisan support earlier this year.
That was led by Representative Chu and Garbarino, and we are
working on that in the Senate now.
We also strongly support H.R. 5333, the Investing in All of
America Act. This is also bipartisan legislation introduced by
Chairman Meuser and Skelton, and many Members of this
subcommittee are cosponsors. If passed into law, it will bring
more private capital into parts of America that are often
overlooked and with some of the following benefits: There is no
new spending. There is no new mandates, no new subsidies, no
subsidies at all, in fact. It is market-led and market-driven.
100 percent of the investments are in American small
businesses. It encourages investments in low-income areas,
rural areas, and areas of national security importance, and the
inflation adjustment allows the program to remain competitive
and operational as inflation marches on and time marches on.
So, today, there are nearly 320 SBIC licenses managing over
$42 billion in domestic investment. This is extremely strong
and getting stronger. There are currently 94 licensed
applications that are in the licensing pipeline. To put that in
context, SBA normally licenses in a normal year 25 to 28
licenses, and there are 94 in the pipeline coming through. The
demand for small business capital is there, and the market is
following it. That is about $15 billion to $20 billion of
additional small business investment that is coming online in
the next couple years once those get through the licensing
process.
So I want to thank the Chairman for having this hearing.
Thank you, the Ranking Member, for being here as well, and
the full Chairman for joining us for this hearing. Thank you.
Happy to take your questions.
Chairman MEUSER. Thank you very much, Mr. Palmer.
We now recognize Mr. Glover for his 5-minute opening
remarks.
STATEMENT OF JERE W. GLOVER
Mr. GLOVER. Good morning, Chairman, Chairman, Ranking
Member. Thank you for the opportunity of appearing here today.
I am Jere Glover, the executive director of the Small Business
Technology Council. I got my early experience in the federal
innovation and technology area back in 1978 when I staffed a
joint Senate and House Committee and report that documented
clearly the underutilization of small business by the federal
R&D programs.
Next to the GI bill, after World War II, I believe the SBIR
program is one of the most significant pieces of legislation
Congress has ever passed. Why is it so significant? Well, one,
it revolutionized the way government does business. For the
first time there was a law that required federal agencies to
award a very small percentage of their R&D budgets to small
business. This resulted in the creation and support of tens of
thousands of new innovations and small businesses.
The benefits of this to the American innovation economy
have been tremendous. Two technologies that you use every day:
One is the GPS on a chip, which is in your cell phones and on
your cars, allows you to track what is going on; the other is
the CMOS system, which is the cameras, which are on virtually
all cell phones. Those are just two examples of the technology.
Thirty-eight percent of SBIR awards go to new firms every
year. That amounts to 1,500 new companies that had never gotten
an SBIR program, winning an SBIR award. Ninety-nine new drug
approvals in the last 24 years were funded by SBIR. And, if you
think those were unimportant drugs, 16 percent of the priority
review drugs, meaning those that had made significant health
advances over prior treatments were, again, funded by the SBIR
program.
When we also look at the return on investment, several
economic impact studies have clearly shown that the return on
investment is about 25 percent. For every dollar invested in
the SBIR program, there are $11 of commercial sales,
nongovernment sales at the National Cancer Institute, and $3 of
nongovernment sales at the Department of Defense. Eight percent
of all venture capital investments go to funds that have
received SBIR funding.
Over half of the SBIR Phase II awards go on to be
successful. For every dollar invested in the SBIR program, over
$3 in taxes are paid State and local. Over 2,800 firms, SBIR
firms, and their technologies have been acquired. Over 800 of
these SBIR firms have gone public. SBIR firms have acquired
149,000 patents.
The purpose of the Small Business Innovation Research Act
is to stimulate innovation, to use small businesses to meet
federal research and development needs, to foster and encourage
participation by minorities and disadvantaged persons, to
increase technology and innovation, and to increase private
sector commercialization innovations that derive from research
and development.
Has SBIR achieved these goals? Yes. In 18 National Academy
of Sciences that the government spent over $20 million to fund
over the years, they have looked at these goals and determined
that, yes, they meet all of these goals, with the exception of
women and socially and economically disadvantaged small
businesses.
Recent data from SBA, however, indicates that they are
making significant progress, a 33-percent increase in the
socially disadvantaged firms winning SBIRs and an 18-percent
increase in women-owned businesses. Why does it work? Why does
SBIR work? Merit selection based on science and technology, the
best proposal wins. It is highly competitive, extremely
competitive. Only 1 in 12 proposals get to a Phase II.
SBIR solves our federal R&D challenges and supports the
agency missions. Agencies select the topics, select the
winners, and make awards to meet their needs. University and
small business partnerships drive SBIR and STTR solutions.
While some people may focus on the big end of the funnel and
fight over the crumbs as to who gets what, we need to focus
more on the small end of the funnel and make sure that the
primes start adopting outside technology or we have a serious
problem.
Recommendations: First, SBIR should be made permanent;
secondly, the proposal and contracting process should be
simplified and standardized. The SBIR allocations should be
doubled. And, for improved transition, prime contractors should
be required to use and report on the use of SBIR and
nontraditional firms. Thank you for your time.
Chairman MEUSER. Thank you.
We will now move to Member questions under the 5-minute
rule. I now recognize myself for 5 minutes.
Mr. Palmer, I will start with you. Real-world examples of
what the SBIC has meant to the overall organization, meant to
the SBIC, individual companies, and to those that they were
providing investments to, and how would the bonus leverage
improve things and benefit small business access to capital?
Mr. PALMER. Sure. The SBIC capital, as I mentioned, is the
first institutional capital to go into most businesses. So a
lot of this is professionalizing the business and helping them
scale up. The number of employees increases significantly in
almost every case. I can't think of a case where it hasn't
been, which has been helpful.
Now, the bonus leverage is designed specifically to make it
so there is an incentive, not a mandate but incentive, to look
off the beaten track to parts of the country that haven't been
invested in. So, if you have a fund, the funds have a 10-year
lifespan, 5 years of which they invest and then 5 years they
harvest, in the first 5 years, it is an incentive to look out
for low-income areas and rural areas and industries in these
national security sectors. And, if you find a business there
that you might not have otherwise gone to, you can access more
leverage and doesn't preclude you from doing another deal. And
so it just is an incentive to look off the beaten track and
find more companies in places that otherwise often get passed
over.
Chairman MEUSER. Sure. And, in your opinion then, would the
SBA, by implementing bonus leverage as drafted in the
legislation, Investing in All of America Act, my bill, H.R.
533, would that be advantageous in the manner that it is
intended?
Mr. PALMER. It would be very constructive. It would be very
constructive for every State in the Union.
Chairman MEUSER. Okay. Adjusting the leverage caps, is
that--you believe that is necessary within the SBIC program?
Mr. PALMER. Yeah. So the leverage caps rely--some of them
were adjusted back in 2015, some in 2018. And, basically, as
inflation has carved up and chewed up 25 percent of the SBIC
firepower, as far as under the leverage caps, and so, as time
marches on, there just needs to be an inflation adjuster so
that they can continue to operate the way they would because
just time catches up.
Chairman MEUSER. Mr. Glover, congratulations on everything
you have done over time for small business. It is appreciated.
Do you agree with what Mr. Palmer is saying?
Mr. GLOVER. I do. It has been the goal of the founders of
the SBIR program forever to have venture capitals focus
specifically on SBIR firms. A few have done that. Obviously,
many of them do it some. But, to have some of them that are
specifically focused on equity funding, the SBIC program, we
have talked about this, we have worked on it, we have dreamed
about it for 40 years, and so I am glad that you are making
some steps to make that happen, and hopefully we get to see
this legislation go going.
Chairman MEUSER. Good.
Mr. PALMER. Yeah, you are going to see a lot more equity
investor funds coming in the pipeline. There are a significant
number of those, 94 that I mentioned.
Chairman MEUSER. Sounds good.
Mr. Valletta, SBIC, private investments, fueling the
development and innovation of your small business clients?
Mr. VALLETTA. Yes. These American seed funds are paramount
to small business innovation as well as growth. And, for
organizations like ours, so that our venture investment and
development organizations, it is extremely important because
part of our program--a portion of our funding comes from public
sources like State government, public authorities, or bonds,
and federal programs like the Small Business Credit Initiative,
the SSBCI, are very important programs.
Now, as we know, most venture development organizations
receive returns on their investments. What we would like to do
is have a virtuous cycle of business innovation as well as
investment velocity to take our funds that we receive back from
those investments, turn them back into SBICs and SBIRs, and so
forth, so removing that leverageable capital requirement in
regards to being able to leverage those dollars for innovation
and investments.
Chairman MEUSER. That is great. And you have really done
great things for Pennsylvania over the years, so it is
appreciated.
Mr. VALLETTA. Thank you, Chairman.
Chairman MEUSER. Ms. Bresler, so you gave a nice list of
ideas and solutions for improvements. Do you find your
suggestions as a significant stakeholder here are being heard
and that we are advancing in the manner that you would see
best?
Ms. BRESLER. Thank you for the question. To some extent,
yes, I am here in the room with this audience. And,
unfortunately, I think some of the most basic recommendations
are some of the hardest to implement anywhere but this room.
You know, for instance, the size standards, even if you have
buy-in from the people involved in these programs, they
understand on paper that a company doing $350 million a year in
revenue doesn't sound like a small business in the way that
everyday Americans view small.
Chairman MEUSER. Sure.
Ms. BRESLER. They don't have the ability to implement that
change. So I think it does depend on having, you know, a caucus
of people with, you know, different interests in this broader
pool to come together and implement these changes collectively.
Chairman MEUSER. Good. We will work on it. Thank you.
My time has expired.
I am now going to recognize Mr. Landsman for his 5-minute
questions.
Mr. LANDSMAN. Thank you, Mr. Chair.
Mr. Glover, a couple things: One, these are two really
important programs, but they are not permanent. Can you talk a
little bit about the value of making them permanent as we look
to reauthorize them?
Mr. GLOVER. Every few years the government thinks----
Chairman MEUSER. Mike.
Mr. LANDSMAN. You might want to grab that. Yes.
Mr. GLOVER. Sorry. Sorry. Every few years, the government
thinks, ``Oh, this program is going to go away, so we don't
have to continue funding. We don't have to make long-range
plans. We don't have to make that a critical part of our
infrastructure to make innovations great.'' There is no
question innovation and adoption by the federal government in
the R&D world is not working as well as it should. We are
fighting against China, and we simply aren't there.
But, when--to have one of its critical fundamental programs
threatened to be going away every time and have the government
think about it going away and to have the businesses not be
able to plan long term is very bad.
Mr. LANDSMAN. Yeah. Also, Mr. Glover, the Federal and State
Technology, or FAST, Program works with our SBA resource
partners to provide technical assistance. Does investing in
resources like this help address concerns about diversity in
the program?
And the next question gets at some of the really compelling
points that Ms. Bresler brought up in terms of diversifying,
opening this up. Can you just talk a little bit about some of
the things that she mentioned in terms of the update to the
process, just simplifying a whole host of things that would
make it more competitive and address some of the concerns she
raised.
And I ask about the technical assistance in that context
because, you know, on one hand, the technical assistance, I am
sure, is terribly important; on the other hand, the assertion,
if I was correct, is that there is--some folks have more of an
advantage than others as they get that technical assistance.
Mr. GLOVER. Well, first, to answer your question about
FAST. I think FAST is a critical, money well spent, I think,
quite frankly, that should be increased. I think that, quite
frankly, there should be some sort of regional development
under the FAST Program to help the other--the FAST operations.
I believe the FAST Program is responsible for the significant
increase in minority----
Mr. LANDSMAN. Sorry, I apologize. Can you repeat the
regional piece? Can you explain that a little bit more?
Mr. GLOVER. Yeah. So you would have some sort of super FAST
Programs that help work with other smaller FAST Programs.
Mr. LANDSMAN. Oh, I see.
Mr. GLOVER. And, quite frankly, 125,000 or whatever it is,
is just simply not enough to run a really good program. So you
need somebody to help you, show you how to do it. That is maybe
one or two people. So it is not enough. But it has had a
critical impact because we are seeing minorities and we are
seeing women-owned businesses numbers going up significantly,
and FAST is a critical part of that.
As far as to the participation, you know, 1,500 new firms
every year, that is a lot of new firms. So we are getting a lot
of companies in. Are we perfect? Nothing ever is. In my
opinion, it is the best program in federal R&D ever created
because it has less--it has a huge return on investment. Over
$3 in taxes on loan come back from these programs.
So the government picks the companies, they pick the
topics, they pick the winners, and they choose. In many cases,
especially in defense, there are technologies that are very
sophisticated, and the government needs that. And, quite
frankly, the primes aren't providing it. So it is important to
have those companies with the knowledge, experience, and
background, and equipment, and experts to meet those government
needs.
Commercialization is one of four goals, only one, getting a
small business percentage. And, as far as size definitions, the
general size standards at SBA for R&D is 1,000 to 1,500, not
500. SBA, looking at this and all of the criteria, would be
more likely to increase the size standard, not lower it.
Mr. LANDSMAN. So let me thank you for that. I am running
out of time, but what I think would be good is if somehow we
can get the two of you in a room and sort out what the changes
would be. I know that you have different feelings, but it does
seem like that could be a very helpful thing as we look to
reauthorize, update, improve the process from application to
scoring, to--I think, Ms. Bresler, you talked about having a
group that could help sort through some of this so that it is
not just the same folks. I don't know if you would be
interested in that. Maybe our team can follow up with the SBA
to--or this committee to talk through it, but I think that
could be very helpful.
Mr. GLOVER. I think that is a very good idea. Thank you. I
will look forward to it.
Chairman MEUSER. The gentleman yields.
I agree. I think it is a very good idea, as well.
We now recognize Chairman Williams from Texas for 5
minutes.
Mr. WILLIAMS. Thank you, Chairman.
And, Ms. Bresler, I am a small business owner back in Texas
like you are. And you used some words today that the federal
government doesn't understand. Okay. It is called ``easier,
faster,'' and ``incentivize.'' They don't get that. Okay. They
only hear it from the private sector.
So the Department of Defense SBIR program often lacks
instructions for small businesses to follow. You have said
that, and I agree with you. We have heard from many frustrated
small business owners who have left with more questions than
answers about the requirements and what would be needed for
followup on contracts, when to apply for the SBIR program, or
even which DOD innovation initiative actually they should use.
So this causes many small business, as you talked about, to
walk away from the defense market and not participate in the
program because they do not have a clear picture of what the
full investment will be and cannot justify navigating the
complicated regulations.
So, simply, how can this concern be addressed, and how
widespread is the issue?
Ms. BRESLER. Thank you for the question. So I think the
easiest way to assess this would be trying to go through this
process yourself, having as many people who are involved in
designing the process actually go through it and make notes. I
think, relative to some of the complex technological challenges
that the Department of Defense tackles on a daily basis, this
is relatively simple, but the cultural piece is significant.
And you would need to look at not only creating the
appropriate systems, policies, having the right tools, but also
requiring that new steps be taken, requiring certain metrics to
be tracked. So, even this notion of how many new businesses are
working in the SBIR program every year, the reason you can hear
different numbers is because there isn't a standard way in
which they track that, for instance.
Mr. WILLIAMS. Mr. Valletta, your testimony indicated that
several hurdles remained to make the SBIC program cumbersome,
that make it cumbersome, including the limitation and
definition of ``leverageable capital,'' which could be
broadened and made clearer. What would you recommend we do on
this committee to fix this particular issue?
Mr. VALLETTA. Yes, actually, thank you for that question.
We really look for the SBIC program to be expanded from that
leverageable capital, with using the venture investment
development organizations like ourselves, to be able to use
that capital, the returns that we receive from programs,
various programs, from State and local and federal, to be able
to get that velocity of investments from organizations; and
then, on the SBIR and STTR type of programs, leveraging those
organizations to make it clear, as Ms. Bresler mentioned, in
regards to maybe using an IPart program, those innovation
partnerships like we have in our program at Ben Franklin, to
make the process easier and to note that we have a 28-percent
success rate versus the national average of 18 percent. So I
think all those things combined make it easier for the
communities that we serve to refresh, retain, and reimagine
jobs for our great country.
Mr. WILLIAMS. Thank you.
Mr. VALLETTA. Thank you.
Mr. WILLIAMS. Mr. Palmer, our government spending is
currently on an unsustainable path, in case you were not aware
of that.
Mr. PALMER. I am aware of that, yes.
Mr. WILLIAMS. Okay. Overspending poured gasoline on the
inflation fire. Every single day every American is currently
experiencing these high interest rates for a--and they are
going to be a decade long. Simply, how does the current
economic climate affect the performance and viability of the
SBICs?
Mr. PALMER. The SBIC--the demand for SBIC capital is
extremely strong because the banks have had to pull back. The
banks are--particularly the smaller and regional banks are
struggling with still a loss of deposits. That is a challenge.
And the businesses that have floating rate loans, their costs
have gone up significantly.
So I was talking to a fund manager the other day; they had
a business that was growing at 40 percent a year and just
rocking and rolling. And they are down to 5-percent growth,
just changes entirely on interest rates, just the cost of
borrowing capital to grow. And that is hard. But inflation is
difficult on consumers, and it is difficulties on businesses to
plan, and it is a challenge.
Mr. WILLIAMS. Real quick, with the time we have got going,
as a followup: I always look at, when evaluating any government
program or anything, is a return on investment, which they
don't understand about here in Washington. But, for those
people that may not be familiar with the SBIC program, can you
tell us quickly if any taxpayer dollars have been lost, and
what would have to occur for the federal funds to be wiped out
in this program?
Mr. PALMER. Sure. Excellent question. So it is a zero-
subsidy program. So, by law, it cannot. We have to--they charge
additional fees on top of it. There are hundreds of millions of
dollars, maybe $1 billion to the positive as far as excess fees
versus losses that are there. But the key to the program that
makes it work and be taxpayer protection is that the private
capital has to be lost first before the taxpayer is exposed.
And, frankly, I think that should be true for just about any
government program that is existing, because you should have
your own money at risk before anybody gets exposed.
Mr. WILLIAMS. My time has expired. I yield back. Thank you.
Chairman MEUSER. I now recognize Representative Chu from
California for 5 minutes.
Ms. CHU. Mr. Palmer, thank you for your steadfast support
for my and Representative Garbarino's bipartisan bill, the
Investing in Main Street Act, which would amend an outdated law
to finally allow financial institutions to invest up to 15
percent, triple the current limit of 5 percent, of their
capital and surplus into SBICs. And this will help SBICs, I
believe, immensely.
The House has overwhelming passed this commonsense change
for several Congresses in a row now. Can you discuss why this
bill is so needed and what the impact would be on our small
business investment ecosystem if the Senate were to finally
take up this bill and pass it into law?
Mr. PALMER. Well, first and foremost, thank you for your
leadership on it. It would be incredibly helpful. It is just a
glitch in the law that different parts of law were written at
different times. So banks were allowed to invest in SBICs so
that the money can go to small businesses, but the SBICs aren't
allowed to accept it, which is just silly. It is just a
percentage question.
And so, thanks to your leadership, it has passed several
times. The Senate is very difficult to get anything through.
There is no cost associated with it. But, as I was saying in my
testimony, there is over 90 SBIC funds in the licensing
pipeline currently. They normally license around 25 a year.
Demand for this capital is off the charts. These funds have to
raise, and they need to raise from banks. And there are a lot
of banks who would like to invest more, but they are just not
allowed to, not because the banking law says they can't; it is
the SBICs can't accept it. So it would be very helpful in
getting more private capital that would then be amplified
through the small business ecosystem.
Ms. CHU. And how would it help small businesses?
Mr. PALMER. There would be more capital available, frankly.
There would be more equity capital available under the new
programs that the SBA has rolled out, the new models for
debentures. There would be more debt capital available too, and
there would be more capital in underserved areas that currently
aren't being capitalized.
Ms. CHU. Well, thank you for that.
And, Mr. Palmer, I was encouraged to hear in your testimony
that, at the end of fiscal year 2023 the amount of capital that
SBICs invested in small business was at record levels and that
about a quarter of those investments were in minority-, women-,
and veteran-owned small businesses or those located in low- to
moderate-income areas.
However, despite this promising growth, we know that these
types of underserved small businesses still face significant
barriers in accessing investment capital. For example, one
study found that the average amount of new equity investment in
minority-owned businesses are only 43 percent of the average
equity investment in nonminority businesses. As another
example, in 2020, Black and Hispanic female entrepreneurs
received less than half of 1 percent of venture capital
investments. So can you discuss how the SBIC program can help
close those gaps and what changes in the program might be
needed?
Mr. PALMER. Sure. And, actually, the SBA changed their
regulations last fall, created a couple new models of the SBIC
program underneath the existing debenture program that will
allow for more equity investing, because SBICs do invest at a
higher rate in women and minorities in equity and in venture
than does the broader venture market, and so they will be able
to do more of that. That is helpful.
I think, also, one of the things they came up with is this
Reinvestor SBIC, sort of a fund-to-funds model. It gets a
little complicated, but basically it is almost like a
developmental league or a seed league that they are setting out
there to help develop new, smaller funds in smaller areas.
Also, Congressman Meuser's bill, the Investing in All of
America Act, has a specific incentive to invest in geographies
that are low income or rural, and that is going to benefit more
folks there too. So I think you are going to see some--there is
no quick fixes, but I think, over the next 5 years, you are
going to see a meaningful uptick in a lot of those areas.
Ms. CHU. So I take it you are in support of this rule, the
SBIC investment diversification and growth rule?
Mr. PALMER. It has been very constructive, yes.
Ms. CHU. Okay. Very good.
Mr. Glover, we know that underserved small businesses
remain underrepresented within the SBIR/STTR programs. As the
lead coordinating agency for SBIR and STTR, what steps do you
recommend that the SBA take to enhance education and outreach
to these groups?
Mr. GLOVER. The SBA, to my knowledge, in the last few years
has gone out to historic Black colleges, gone out to areas like
that and done a really good job, and the numbers show that they
are increasing. The socially disadvantaged numbers are up 33
percent; women-owned businesses are up 18 percent. So we are
seeing improvement. They need to do more of that.
And, quite frankly, the SBIR program is underfunded at SBA.
They have very few people working there and very little money
and a lot of work to do, but they are doing a good job of
making that happen. But I think, with more resources and more
people, the SBIR office could do a lot more.
Ms. CHU. Thank you. I yield back.
Chairman MEUSER. The gentlelady yields.
We are now going to move into round two of our questions.
So, Ms. Bresler, I am going to recognize myself for 5
minutes and start with you. SBIR access and awareness for small
businesses, I am sure you have got a couple of things to say
about that, and how to improve it and get more businesses to
participate in the program. Could you offer some of your
suggestions?
Ms. BRESLER. Thank you for the question. First and
foremost, we have to establish metrics that require the program
to award a certain share of contracts, Phase I's, every year to
new businesses that have never worked in the government space,
that would force these program offices to do some of the hard
work of not going with the usual suspects, and that is
critical. There needs to be metrics. There needs to be
requirements, and they need to be held to account.
In terms of the actual work to reach these businesses that
have not previously participated in the program, it comes down
to awareness in general. I think my experience is that it is an
echo chamber. If you go to a program where you are going to
learn something about SBIR, you look around and it is the same
people that are in every room just like it learning about SBIR
over and over again.
So you have to put yourself in front of audiences that are
not already entrenched in these processes. And I think really
putting intelligent size standards in place where you can't
have multi-billion-dollar, publicly-traded companies
participating in the SBIR program will, again, force the
program offices to be more effective in their outreach to truly
small firms.
Chairman MEUSER. Thank you.
Mr. Palmer, do you run into some of the same situations
with the SBIC?
Mr. PALMER. The rules can be complicated. They can be
unclear. They have gotten better, significantly better. But it
is--but trying to broaden out the awareness of the SBIC program
is hard, you know. And I think that that goes to Ms. Bresler's
point is, you know, breaking out of the echo chamber, and I
spend a lot of time traveling around the country trying to
educate on that front. The SBA actually does some of that too,
which I found constructive.
To Mr. Glover's point, I think, you know, parts of the SBA,
particularly the SBIC program, they are underfunded. They do
have too few people doing too much stuff, and when they are
over stretched, that is a challenge. So I think having a few
more people that can do outreach and education, and putting
stuff in plain English, to Ms. Bresler's point, is really
critical so people can understand these otherwise complicated
programs.
Chairman MEUSER. Okay. Mr. Valletta, I know how close you
are to it all. Could you comment on this?
Mr. VALLETTA. Yes, absolutely Congressman. We believe the
SBIR and STTR award capabilities could be better suited with
leveraging organizations like the Innovation Partnership, the
IPart program that I mentioned, you know. We have 20 years of
assisting Pennsylvania's small businesses, and the complexity
of the application process is real. And those small businesses
and creating those programs to increase the quality of
proposals, provide better customer service, and drive that
program applicants to improve the effectiveness is real and
very important.
So organizations across the country like ours, the IPart
program assists, right. So we, Ben Franklin, provide funding
for this IPart program across the State to increase the level
of those submissions so we can increase the level of wins,
which I stated in the past that we have a win rate of 28
percent versus 18 percent. So the capabilities of organizations
like the Innovation Partnership reap benefits for the
constituents that we serve.
Chairman MEUSER. Great. I want to ask something about the
TCJA, the Tax Cuts and Jobs Act. We passed a bill in the House
regarding both depreciation, hundred percent R&D reduction, as
well as dealing with the Small Business Tax Deduction.
It is--I hope the word ``languishing'' is too strong. I
hope it is being dealt with within the Senate.
Mr. Palmer, just quickly, your thoughts on the importance
of the passage.
Mr. PALMER. I think it would be particularly helpful,
particularly that R&D side. A lot of smaller businesses that do
research and development were surprised at sort of the way that
the tax law was being applied, and so I think it would be very
helpful, particularly for small businesses doing really
innovative stuff.
Mr. MEUSER. Thanks.
Mr. Valletta?
Mr. VALLETTA. Yes, actually, it is real, and our small
businesses beg us to work with our local lawmakers, as well as
our federal lawmakers, to get that passed, especially in the
Senate, so agreed.
Mr. MEUSER. Ms. Bresler--thank you--thoughts?
Ms. BRESLER. I think it is probably further down in terms
of the bottlenecks that the small businesses that I am working
with deal with, but anything to offset the burdens of working
with the government or trying to operate in today's economy are
important.
Mr. MEUSER. Thanks. My time has expired.
I now recognize the Ranking Member for 5 minutes.
Mr. LANDSMAN. Thank you, Mr. Chair. I heard--since we are
sort of in problem-solving consensus mode here, and trying to
be--and that was the purpose of the hearing, so again want to
thank the Chair for doing this. It is incredibly helpful--and
the staff for putting this together.
It seems like there are some consensus on the importance of
diversifying. And including more and more businesses--small
businesses--is happening. The question is, you know, what more
can be done?
I assume that this idea of measures and accountability to
see more and more of that is probably worth pursuing. How it is
pursued, is a question. The awareness piece and outreach gets
at something I think most people have said or most of you have
said, which is that there is a staffing issue, and how do you
ensure that the programs have the staffing they need or the
resources to get in front of these small--some of it can be
staff, but a lot of it, you know, so many of these folks are
on--well, everyone is online--and is there the kind of digital
outreach that has proven to be incredibly successful in other
programs to get in front of the intended audiences?
And the simplification of the process from application to
what is on the website, there seems to be consensus there. So I
am curious if--what pieces--and maybe just go across the board
and finish with you, Jere--sorry, Mr. Glover--if you could pick
three big changes, or small, but changes that you would think
would have the most impact, what would those three be?
And then we will end with Mr. Glover and just get your
thoughts on those changes and how we can make them happen,
because it does seem like there is consensus on areas for
improvement.
Mr. VALLETTA. Thank you for that question. From my
perspective, being able to drive the dollars to venture
investment development organizations and changing the
complexity with allowing us to leverage the capital of
investments that we receive from our investments, right? That
would be one.
Second is that the--really driving the investments to below
$3 million, right? So we at Ben Franklin invest in very early
stage. So it is important that--and we are typically the first
dollars after friends and family. So that would be the second
change.
And then the third, and most important, is the requirement
for being--for being for-profit. We are nonprofit. So, it is
important that maybe some nonprofit organizations can get into
the game.
Mr. LANDSMAN. Got you. Very helpful.
Ms. Bresler?
Ms. BRESLER. Thank you. First would be overhaul the size
standards, which I have discussed. The second would be a full
overhaul of the government solicitation process, which would
include SBIR submissions as well as every type of solicitation
that the government issues.
And then third is incentivizing transition of the best and
brightest technologies, specifically bringing the primes into
the mix, so that government stakeholders and prime contractors
are required to integrate a certain subset of SBIR-funded
companies that have demonstrated their technical proficiency
and to encourage a breakdown of these stovepipes that have been
challenging to deal with, offer a greater incentive to
integrate something initially funded by a different branch.
Mr. LANDSMAN. Got it.
Mr. Palmer?
Thank you.
Mr. PALMER. First, I would say nothing should change that
reduces taxpayer protections----
Mr. LANDSMAN. For sure.
Mr. PALMER.--in any way, shape, or form. That is
foundational.
Mr. LANDSMAN. Yes.
Mr. PALMER. But I think we should--you know, the passage of
the Investing in All America Act being--adjustments to the
leverage limits would be incredibly helpful. Expediting the
licensing process for repeat funds so that they are spending
their time for new funds coming in and not people they have
known forever.
And then, finally, you know, as far as adequate funding for
it, keeping the fees that we are paying inside the program that
we are paying for because we are the only one that is not.
Mr. LANDSMAN. Yeah. Smart.
Mr. Glover?
Mr. GLOVER. First, if you want to increase the diversity in
things, double the program. It hasn't been increased in over a
decade. It should be increased. That will quickly double the
number of new firms, number of minorities, and so forth,
proportionally.
Secondly, make the primes use SBIR in new technology and
incorporate it. They are--the law lets them do that. The law
encourages them. Army has just started doing it a little bit.
Mr. LANDSMAN. You got one more. Sorry.
Mr. GLOVER. And, number three, it is--we have tried for
years, and we got and then lost--simplify, standardize the
contracting procedures.
Mr. LANDSMAN. Okay.
Mr. GLOVER. But I have got to say, the 174 deduction issue
is going to blow up in everybody's face, because once you
realize you are going to pay taxes upfront on work you don't
get--you know, profits you don't get downstream, it is
devastating.
Mr. LANDSMAN. Thank you all very much.
I yield back. Sorry.
Mr. MEUSER. The gentleman yields.
Yes, thank you all very much. We want to just formally
thank you, all of our witnesses, for all of your testimony here
today.
Without objection, Members have 5 legislative days to
submit additional materials and written questions for the
witnesses to the Chair, which will be forwarded to the
witnesses. And we do ask the witnesses to do your best to
respond promptly.
Today, there is a lot going on, which tends to be the case
here in Washington these days, so we didn't have all that many
Members within the committee because of other duties that were
compelling, but we greatly appreciate the information that was
received.
I think the questions were excellent, and I think we
derived a lot of the ideas that we will work on, and we will
continue to work on as was mentioned.
So, if there is no further business, without objection, the
committee is adjourned.
[Whereupon, at 11:21 a.m., the subcommittee was adjourned.]
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