[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                    
          
-----------------------------------------------------------------------------------              
            
                   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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