    [Senate Hearing 119-20]
    [From the U.S. Government Publishing Office]

                                                             S. Hrg. 119-20

                           GOLDEN AGE OF INNOVATION:
                    REFORMING SBIR-STTR FOR THE 21ST CENTURY

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

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON SMALL BUSINESS
                              AND ENTREPRENEURSHIP

                                     OF THE

                              UNITED STATES SENATE

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 5, 2025

                                   __________

          Printed for the use of the Committee on Small Business and
                                Entrepreneurship

     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.govinfo.gov

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    59-574                     WASHINGTON : 2025

    -----------------------------------------------------------------------------------

                COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                        ONE HUNDRED NINETEENTH CONGRESS

                                  ----------

                            JONI ERNST, Iowa, Chair
                EDWARD J. MARKEY, Massachusetts, Ranking Member
    JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
    RAND PAUL, Kentucky                  JEANNE SHAHEEN, New Hampshire
    TIM SCOTT, South Carolina            CORY A. BOOKER, New Jersey
    TODD YOUNG, Indiana                  CHRISTOPHER A. COONS, Delaware
    JOSH HAWLEY, Missouri                MAZIE K. HIRONO, Hawaii
    TED BUDD, North Carolina             JACKY ROSEN, Nevada
    JOHN R. CURTIS, Utah                 JOHN W. HICKENLOOPER, Colorado
    JAMES C. JUSTICE, West Virginia      ADAM B. SCHIFF, California
    JOHN HUSTED, Ohio
                    Meredith West, Republican Staff Director
                     Sean Moore, Democratic Staff Director

                                C O N T E N T S

                                  ----------

                          Witness Prepared Statements

                                                                       Page
    Mr. Austin Strawhacker, Associate State Director, America's Small
      Business Development Center Iowa, Ames, IA.....................     8
    Dr. Ken Mahmud, Executive Vice President, Triton Systems,
      Chelmsford, MA.................................................    15
    Mr. Caleb Carr, Chief Executive Officer, Vita Inclinata
      Technologies, Broomfield, CO...................................    23
    Mr. David Rothzeid, Principal of Investments, Shield Capital,
      Washington, D.C................................................    31

                  Additional Letters/Statements for the Record

    Alliance for Commerical Technology in Government-Letter dated
      March 7, 2025..................................................    54
    Iowa Economic Development Authority-Letter dated March 5, 2025...    56
    MassBio-Letter dated March 5, 2025...............................    57
    MassMEDIC-Letter dated March 5, 2025.............................    61
    New England Innovation Alliance-Statement dated March 5, 2025....    63
    Open Source Investigation into Triton Systems Connections to
      China..........................................................    70
    Small Business Technology Council-Letter dated March 5, 2025.....    85
    Software in Defense Coalition-Letter dated March 4, 2025.........    86
    The Technology Association of Iowa-Statement.....................    89
    Triton Systems Inc.-Memo dated March 19, 2025....................    90
    Triton Systems Inc.-Chair Ernst Additional Statement.............    94

                            Questions for the Record

    Dr. Ken Mahmud
        Responses to questions submitted by Senators Cantwell and
          Hirono.....................................................    97
    Mr. David Rothzeid
        Responses to questions submitted by Senator Cantwell.........   105
    Mr. Austin Strawhacker
        Responses to questions submitted by Senator Hirono...........   108

                       GOLDEN AGE OF AMERICAN INNOVATION:.
                    REFORMING SBIR-STTR FOR THE 21ST CENTURY

                                  ----------

                            Wednesday, March 5, 2025

                          United States Senate,
                            Committee on Small Business
                                          and Entrepreneurship,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 2:34 p.m., in
    Room 428A, Russell Senate Office Building, Hon. Joni Ernst,
    chairwoman of the committee, presiding.
        Present: Senators Ernst [presiding], Young, Hawley, Budd,
    Husted, Markey, Shaheen, and Rosen.

                   OPENING STATEMENT OF SENATOR ERNST

        Chair. Thank you everyone, and I call the Committee on
    Small Business and Entrepreneurship to order. With its
    authorization expiring at the end of this fiscal year, today we
    turn our attention to the Small Business Innovation Research
    and Small Business Technology Transfer programs, or SBIR/STTR.
    This program has effectively partnered federal agencies with
    private sector entrepreneurs to scale research and development
    projects aimed at addressing the pressing challenges of the
    day.
        While we've seen a measure of success over the years
    through the committee's oversight efforts, agency studies and
    GAO reports, it is clear SBIR is in need of additional reforms
    to safeguard taxpayer funds and enable this program to meet its
    full potential. Despite the funding spanning 11 agencies and
    countless critical technology areas, SBIR has demonstrated an
    incredible potential to revitalize our small business
    industrial base and preserve America's technological
    leadership. The cutting-edge technologies being generated are
    already serving to enhance competition, improve supply chains,
    and increase overall readiness.
        For these reasons, I am excited to announce that today I'm
    introducing the Investing in National Next Generation
    Opportunities for Venture Acceleration and Technological
    Excellence or INNOVATE Act--we have to come up with these fancy
    names, okay--the INNOVATE Act, a bill to reauthorize and
    comprehensively reform the SBIR/STTR program.
        My legislation streamlines and simplifies existing
    processes, directs the funding toward projects based on merit,
    channels funding to help accelerate the most promising projects
    towards final stage commercialization, protects against waste
    and abuse, and introduces enhanced protections and
    accountability tools to prevent these new technologies from
    getting into the hands of our foreign adversaries.
        First, the INNOVATE Act reforms Phase I to provide new
    applicants with a simplified two-page proposal process with
    smaller, one-time awards, so that more innovators throughout
    the country can have access to this program, even if they can't
    hire professional grant writers. My bill also eliminates DEI
    preferences. These measures enable agencies to scout the best
    proposals based on substance from across the country. I am
    committed to ensuring open competition for innovators with
    traditionally lower engagement in the program.
        Second, my bill addresses the practice of SBIR Mills, where
    firms benefiting from their beltway connections and grant
    writing expertise have been able to collect an outsized portion
    of the funding, with fewer results to show for it. This problem
    was verified by both the GAO, the Government Accountability
    Office, and the DOD's Defense Industrial Board, which reported
    that the firms that got the most awards were less productive in
    terms of commercialization, investments, and patents than those
    who got fewer awards.
        To prevent the use of Phase I or II funding as a permanent
    source of revenue, my bill imposes a $75 million lifetime cap.
    It forces small businesses with dozens of awards to demonstrate
    commercial traction or follow on contracts with non SBIR
    dollars.
        Third, my bill empowers DOD to repurpose, underutilized and
    overly regulated STTR Phase II funding, to more efficiently
    scale the most promising technologies for long-term contracts
    for deployment through strategic breakthrough awards. For these
    awards of up to $30 million, the bill limits eligibility to
    small businesses making clear progress towards
    commercialization, and with an identified DOD end user.
        It also requires 100 percent matching funds to ensure that
    firms have skin in the game, and aren't just in it for
    corporate welfare. These reforms will enable more flexible use
    of SBIR funding to help bridge the valley of death for the
    companies on the verge of success.
        Finally, my bill builds on my longstanding work to
    safeguard these new SBIR technologies from being stolen by our
    adversaries. For years, China and other state actors have
    stolen intellectual property and proprietary secrets from
    American businesses and universities. That is why I championed
    the Foreign Ties Due Diligence Program Reforms in the 2022
    reauthorization. But we have found that more needs to be done.
        That's why my INNOVATE Act introduces a new definition of
    foreign risk, to create a stronger risk assessment baseline
    standard, that must be applied consistently across all
    agencies. It implements a clear list of ties to foreign
    countries of concern, that disqualify an applicant. And it
    empowers agencies with clear clawback authority if a small
    business exposes SBIR funded products to adversarial influence
    post award.
        By targeting SBIR funds to the very best innovators in the
    country, by cutting off the unserious applicants who are just
    after corporate welfare, by providing a boost to the best
    companies who need it to get over the final hurdles and by
    better protecting our taxpayer funded innovations from going
    directly to China, the SBIR/STTR program can expedite new
    technologies, increase economic opportunity, and attract
    investment back into our towns and cities, and help to usher in
    a new golden age of innovation for America.
        I look forward to working with my colleagues to get this
    across the finish line. It's up to us, the members of this
    committee, to work together to optimize this important program.
    I'd like to thank the witnesses for being here today and being
    willing to share their experience and expertise with us. I now
    recognize Ranking Member Markey for his opening statement.

                      STATEMENT OF SENATOR MARKEY

        Senator Markey. Thank you, Madam Chair. And today's hearing
    centers on American innovation and the small businesses that
    lead the way every day of the year.
        For decades, the Small Business Innovation Research
    Program, or SBIR, and the Small Business Technology Transfer
    Program, or STTR, have played an essential role in driving our
    country's innovation. And I'm extremely proud that
    Massachusetts small businesses have played such a prominent
    role.
        The Commonwealth is the second highest recipient of total
    awards in the country, receiving more than 24,000 SBIR awards,
    totaling $8.3 billion, and 2,000 STTR awards totaling over $720
    million.
        This success is due to the Massachusetts business plan:
    attract the best and the brightest, provide a world class
    education, and provide opportunities for small businesses to
    compete on a level playing field, while having the best
    educated and the best trained workforce in the country. We
    start in the fourth grade, we're number one in the fourth,
    eighth, and 10th grade in America in math and verbal. It's a
    business plan; it provides that workforce.
        This has led to the development of America's high-tech
    highway, Route 128, which extends outside of Boston and into
    the surrounding area, akin to Silicon Valley in California, or
    the research triangle in North Carolina.
        SBIR was codified in 1982, and STTR 10 years later, both on
    a bipartisan basis. During this time, Congress was keenly aware
    that the federal research and development needs of the country
    were not being met. SBIR and STTR were designed to use
    America's small businesses to drive innovation.
        These highly competitive programs have contributed to the
    golden age of innovation in our country. We have experienced
    that over the last 40 years. Without these programs, Americans
    would not have novel technologies at their fingertips as they
    do today. For example, the very popular LASIK eye surgery, was
    developed in part due to an SBIR funding. SBIR also funded
    earlier Qualcomm wireless communications systems.
        I'm proud of the SBIR and STTR advancements that have come
    from Massachusetts. Just as Iowa is rich in nutrient filled
    soil makes it the premier producer of corn, it is Massachusetts
    technology ecosystem that provides a fertile ground for
    innovation in the technology sector, which is why we're not
    just the Bay State, we're also the brain state.
        For example, Massachusetts small businesses have received
    more than 70 awards for projects related to the treatment of
    Alzheimer's disease, the brain, and it's approaching it for
    many different avenues. Today we'll hear from Triton Systems, a
    company from the Commonwealth, that used an SBIR award to help
    create the world's smallest heart pump, which is now
    universally used in hospitals because of an SBIR grant.
        Without SBIR and STTR funding, many of these products may
    have never seen the light of day. These programs are highly
    efficient and pay dividends for the American people. The return
    on investment for every dollar the government spends on these
    programs is anywhere from $20 to $30.
        SBIR and STTR awards from the Department of Defense alone
    creates over 65,000 new jobs every year. The SBIR and STTR
    programs work because they prioritize merit and competition-
    Darwinian paranoia inducing competition--that's the hallmark of
    STTR and SBIR. That's what it's all about-Darwinian
    competition; the best ideas prevail.
        We should not place limits on the number of awards or the
    amount of funding that goes to deserving small businesses. We
    should not put a limit on the best ideas or the best
    technologies. That's what we're going to need to compete
    against China. We would never limit the number of contracts
    that a large defense contractor receives from the Federal
    Government. So why would we consider limiting our most nimble
    allies in innovation-our small businesses?
        We don't tell Raytheon or Lockheed Martin, ``You've had
    enough Federal contracts; we're going to start with a smaller
    firm.'' We don't do that. We go to where the best ideas are.
    While SBIR and STTR have enjoyed bipartisan support for several
    decades, we have not yet been able to make them permanent.
    They're currently set to expire at the end of September.
        I've worked throughout my time in Congress to make
    improvements to the programs and ensure that their
    authorization never lapses. It's critical that we do so again,
    and I'm looking forward to working with you, Chair Ernst, on
    this issue, and I want to thank all of our witnesses for your
    help in us understanding this issue today.
        Chair. Great. Thank you, Ranking member Markey. And again,
    I want to extend a warm welcome to all of our witnesses today,
    and I will now introduce the three witnesses who are testifying
    today on behalf of the majority. I am thankful that all of you
    took time out of your busy schedules to join us in front of the
    committee and share your expertise and insight into the SBIR
    and STTR programs with this committee.
        First is Mr. Austin Strawhacker, who is the Associate State
    Director at America's SBDC in Iowa, at Iowa State University in
    Ames, Iowa. The Iowa SBDC operates 15 centers across the state,
    providing expert business counseling to entrepreneurs and small
    business owners. Mr. Strawhacker oversees the Iowa's SBDC's
    Technology and Commercialization team, which supports
    innovative entrepreneurs in leveraging federal and state
    resources in all 99 counties.
        He also chairs the Association of Small Business
    Development Centers Research and Data Committee, and serves on
    the Iowa Rural Development Council. Mr. Strawhacker also holds
    bachelor's degrees from Grandview University and a Master of
    Public Administration from Drake University, both in Des
    Moines, Iowa. So, Austin, thank you very much for being here
    today.
        Next, Mr. Caleb Carr is the CEO of Vita Inclinata, an
    aerospace and industrial company headquartered in Broomfield,
    Colorado. Vita Inclinata received six SBIR awards totaling just
    over $4 million that were crucial to the company's success. Mr.
    Carr serves as a board member for the Software and Defense
    Coalition, and is a professor of entrepreneurship at the
    University of Colorado. He graduated with a bachelor's degree
    from the University of Colorado at Denver and holds a Juris
    Doctor from Mitchell Hamline School of Law.
        Our third witness, Mr. David Rothzeid, is a Principal at
    Shield Capital, a venture capital firm focusing on investing in
    early-stage companies, developing technologies critical for
    national security. He served for eight years as an acquisition
    officer in the United States Air Force. Thank you very much for
    your service to our country, including a deployment with
    Special Operations Command in Afghanistan.
        He subsequently worked at the Defense Innovation Unit,
    ending his time there as Director of Acquisition Pathways. Mr.
    Rothzeid has a bachelor's degree from Miami University, and an
    MBA from the University of Colorado, Colorado Springs. Thank
    you again. And I now recognize Ranking Member Markey to
    introduce his witness.
        Senator Markey. Thank you, Madam Chair. The minority
    witness today is Dr. Ken Mahmud, who is the executive Vice
    President of Triton Systems, which is a business at the cutting
    edge of innovation. Triton Systems is a multi-award winning
    SBIR and STTR company and was awarded the Small Business
    Administration's TIBBETTS Award in 2016 for its success in the
    SBIR program.
        Dr. Mahmud has more than 35 years of experience in research
    and development, including managing Triton's participation in
    the SBIR and STTR programs. And we welcome you, Doctor, to the
    panel today. Thank you, Madam Chair.
        Chair. Thank you, Ranking Member. And briefly, I'd like to
    take a moment to explain our lighting set system to the
    witnesses. There are three lights in front of you; green means
    go, yellow means you are running out of time, and red means to
    go ahead and wrap up those remarks. So, I ask unanimous consent
    that the witness's full statements be included in the record.
    Without objection, so ordered.
        As your written testimony has been made part of the record,
    the committee asks that you limit your oral remarks to five
    minutes. And with that Mr. Strawhacker, you are recognized for
    five minutes for your testimony.

    STATEMENT OF MR. AUSTIN STRAWHACKER, ASSOCIATE STATE DIRECTOR,
      AMERICA'S SMALL BUSINESS DEVELOPMENT CENTER IOWA, AMES, IOWA

        Mr. Strawhacker. Chair Ernst, Ranking Member Markey, and
    distinguished members of the committee, thank you for the
    opportunity to testify on the reauthorization of the Small
    Business Innovation Research and Small Business Technology
    Transfer Programs.
        As the Associate State Director of America's SBDC Iowa, I
    provide oversight to our technology and commercialization
    center, which provides guidance to innovators, often including
    the exploration of SBIR and STTR funding. I'm proud to work for
    an organization that is vital to the success of so many small
    businesses. The Iowa SBDC fosters innovation, strengthens local
    economies, and drives small business success.
        We engage with approximately 5,000 clients annually, that
    in 2024 alone launched 225 new businesses, created 101,795 new
    jobs--I wish it was the bigger number, generated $174 million
    in sales and secured $57 million in new capital. This yields an
    ROI of 3.7 on all of our funding sources.
        Hosted by Iowa State University, the Iowa SBDC collaborates
    with various partners to provide tailored services that support
    businesses in both urban and rural areas. Our regional centers
    act as a pipeline to lead technology driven businesses to our
    technology and commercialization center for assistance with
    SBIR/STTR proposal development, intellectual property, and
    commercialization assistance.
        Today I would like to focus on three main points: the
    importance of the SBIR/STTR programs, the importance of
    localized support, and outline a couple of challenges and
    opportunities. For over 40 years, SBIR and STTR have ensured
    that small businesses play a significant role in the federal
    research and development.
        These programs help develop groundbreaking technologies,
    create high quality jobs, and enhance our global
    competitiveness. In Iowa SBIR and STTR fundings help bridge the
    gap between research and market deployment, particularly in key
    sectors like advanced manufacturing, agricultural technology,
    and biosciences. These programs also attract follow on
    investment, drive job creation, and expand local supply chains.
        In fact, over 50 percent of successful SBIR and STTR
    applications that we have assisted with, have leveraged their
    awards to generate additional funding that has more than
    doubled the overall investment in these companies. Rural
    entrepreneurs in particular exemplify the grit and innovation
    that define American small businesses. Despite facing
    challenges such as limited access to capital, workforce
    shortages and geographic barriers, they drive technological
    advancement and local economic growth. SBIR and STTR often
    provide the critical support needed for these entrepreneurs to
    take risk, push innovation, and continue to contribute to the
    national competitiveness.
        The success of small businesses, particularly in rural
    communities, depends on access to localized support. A prime
    example in Iowa is Senator Ernst Entrepreneur Expo, an annual
    collaboration between the Senator, the Iowa SBDC, and Iowa
    State University Center for Industrial Research and Service.
    This event connects small businesses with industry experts,
    government resources, and potential investors, fostering
    collaboration and showcasing innovation.
        Additionally, we have established the Great Plains SBIR
    working group with our partners in Kansas, Nebraska, and
    Oklahoma. This group meets monthly to share best practices,
    develop solutions and strengthen the regional support network.
        While SBIR and STTR have been highly effective, there are
    opportunities to enhance their impact. Streamlining the
    application process and introducing a smaller Phase I award
    could lower barriers for first time applicants, particularly in
    rural areas. This would allow early-stage research to explore
    commercialization potential before full feasibility and
    commercialization work begins.
        Many companies also receive very little feedback on their
    Phase I proposals if they're declined. Often the reason for
    declaration is something that SBDC could help with proactively
    if more guidance was provided. Increasing transparency and
    structured feedback would help applicants refine proposals and
    improve success rates.
        There should be recognition that innovation exists
    everywhere across our nation, yet just five states receive 46
    percent of SBIR/STTR awards and dollars according to public
    data on sbir.gov. Addressing this disparity through targeted
    outreach, regional training, and improved evaluation
    transparency, could ensure fair access to funding no matter the
    geographic location of the business.
        In conclusion, SBIR and STTR awards have driven innovation,
    strengthened local economies, and created high quality jobs in
    America for over four decades. By leveraging SBDC's support,
    small businesses can access commercialization experts, funding
    strategies and technical assistance to maximize program
    benefits.
        Continued collaboration among federal agencies, local
    resource providers and entrepreneurs will be essential in
    maintaining the United States leadership and innovation. I
    thank you for your time and consideration today, and I welcome
    any questions.
        [The prepared statement of Mr. Strawhacker follows.]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chair. Thank you very much, Mr. Strawhacker, and we will go
    next to Mr. Mahmud, and you are recognized for five minutes for
    your testimony.

     STATEMENT OF DR. KEN MAHMUD, EXECUTIVE VICE PRESIDENT, TRITON
                   SYSTEMS, CHELMSFORD, MASSACHUSETTS

        Dr. Mahmud. Good afternoon, Honorable Chair Ernst, Ranking
    Member Markey, and all other members of the Senate Small
    Business Committee. Thank you for the opportunity to speak at
    today's hearing. I'm pleased to share my insights into how
    Triton has supported SBIR's successful track record of both
    advancing national security and the economy. I'd like to share
    a few examples with the committee, mainly to show the different
    paths to commercialization and the benefits to both the war
    fighter and the United States as a whole.
        First, a few words about myself. I received my Master's and
    Ph.D from RPI in upstate New York, in chemical engineering. I
    have been in leadership roles as Senator Markey mentioned in
    U.S. industry for over 35 years. I'm an inventor with over 30
    patents, and I received the Tibbetts award from the SBA on
    behalf of Triton for commercial success and commercializing
    SBIR derived technologies.
        Triton is a hundred percent U.S. owned company with
    significant employee ownership. Most of our technical staff
    have security clearances and carry an incredible passion for
    helping the country and the war fighter, as you will see. Let
    me show you some examples of the impact on national security
    and the economy as a whole.
        We supply a critical component to the F-35 aircraft, which
    is the largest DOD platform ever. It is expected to save the
    Air Force over $550 million in sustainment costs. We supply
    another critical component to the F-22 aircraft, which will
    enable another $200 million in sustainment cost savings for the
    Air Force.
        We have set up a venture in the state of Washington to
    manufacture long range aerial mobility systems, to support a
    Navy program of record. To do this, we are setting up an entire
    Berry compliant U.S. supply chain, bringing back capability
    that had moved overseas. This involves companies across the
    country, primarily starting with North Carolina, but also
    companies in Tennessee, Massachusetts, Rhode Island,
    Pennsylvania, and of course final manufacturing in the state of
    Washington.
        Our hearing protection product is being qualified for Army
    helicopter air crew. I do want to point out here that hearing
    loss and tinnitus is two of the biggest health issues affecting
    our veterans. With over a million veterans affected, it is
    estimated that the VA provides over a billion dollars in
    disability benefits related to these conditions.
        Our bladder relief product for aviators is being qualified
    for navy combat missions, and Air Force recon missions. Our
    SBIR derived sensor technology enabled the world's smallest
    heart pump for use in cardiac failure intervention. I do want
    to mention here that heart disease is the number one cause of
    death for Americans today.
        We are also investing in the first large area metallic 3D
    printing capability in the country, with internal funding. This
    will be a new capability for the United States, allowing for
    the manufacturer of 3D printed large metallic parts for
    aircraft, missiles and other DOD platforms. I would like to
    finish by offering some suggestions to the committee for
    improving the SBIR program based on our experience with it.
        The SBIR program is one of the most successful technology
    programs in the federal government, as indicated by all
    National Academy of Science Studies and multiple agency
    studies. We believe this is because of the merit-based nature
    of the program, the competition, the ruthless competition that
    it fosters, and the flexibility, and this is very important,
    the flexibility given to the agencies to adapt it to their
    needs.
        Our suggestions to the committee include: number one,
    provide meaningful incentives for transition to Phase III for
    DOD platforms in particular. I will just add on a personal
    note, that you know, for a small business when most of the
    platforms are owned by the prime contractors, it is incredibly
    hard for a small business which is focused on a sub component
    or a component to de-risk it, mature it, qualify it, and
    integrate it. It requires a tremendous amount of cooperation
    with the primes.
        And I do want to add here that, small businesses like ours,
    who have developed a rare expertise in working with academia to
    reduce ideas to practice and working with primes, to then take
    them to a platform and transition it to a program of record,
    offer a unique skillset in our innovation ecosystem.
        Number two, streamline the contracting process. I believe
    this is a request that all of the witnesses will make,
    streamline the contracting process by mandating standard
    contracts. Number three, adequately resource the agencies to
    implement the foreign risk management provisions.
        And number four, reauthorize permanently, or at least for a
    longer term so that small businesses and agencies have some
    certainty in their business planning. I wish to end by thanking
    the members of the committee for your continuing support for
    the program, and for the opportunity for me to speak to you
    today.
        [The prepared statement of Dr. Mahmud follows.]
       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chair. Thank you very much, Mr. Mahmud. I appreciate that.
    We'll move next to Mr. Carr. You're recognized for five minutes
    of testimony.

      STATEMENT OF MR. CALEB CARR, CHIEF EXECUTIVE OFFICER, VITA
              INCLINATA TECHNOLOGIES, BROOMFIELD, COLORADO

        Mr. Carr. Chairwoman Ernst, Ranking Member Markey, and
    members of the committee. Thank you for having me today.
        I founded my company following the death of a friend of
    mine. While we were on a search and rescue exercise in the
    mountains, he experienced active cardiac arrest and we called
    the rescue helicopter to come and rescue him. The helicopter
    proceeded to lower a rescue basket down to us, but due to the
    winds of the helicopter, the rescue basket kept swinging, and
    because of it, we couldn't get it through the trees above. As a
    result, we called off the mission and called time of death.
        Several years later, my business partner and I founded what
    would be known today as Vita, a company focused on designing
    technology that would eliminate the swing and sway of suspended
    loads on rescue helicopters and save lives. Preventing the
    reality that happened to my friend over a decade ago and
    drastically improving upon the current solution that our war
    fighters and rescue personnel use today, a rope.
        We started in a cold garage in Denver, Colorado, working
    tirelessly to find a solution to the problem. Investors would
    turn us down, left, and right due to the lack of market
    knowledge on the issue and more importantly, the amount of
    complexity that designing a solution and selling said solution
    to the U.S. government would entail.
        It wasn't until something else took a risk on us in late
    2018-the SBIR program, specifically the open topic AFWERX SBIR
    program. The SBIR program took a risk on us, our three-page
    white paper, and our idea. And in doing so, it empowered us to
    quit our jobs, hire a team, and design a solution that we now
    call the Vita Rescue System. Subsequently, the company went on
    to secure two Phase II contracts and eventually a Phase III
    transition, $50 million IDIQ to the U.S. Army, which we
    anticipate putting into motion later this year.
        Meanwhile, that system is now deployed to the battlefields
    of Ukraine, CALFIRE's fire attack helicopters that were used
    recently during the Palisades in Eaton fires, multiple Army
    National Guard units, including South Carolina and across the
    entire Air National Guard.
        Yet that was just the beginning. Thanks to that investment
    by the SBIR program, Vida expanded into providing the essential
    gear that crews need to fight the mission, such as harnesses
    and rescue bags, to the point whereby just two weeks ago, we
    received the following message from a son. ``I just wanted to
    thank you for making such a great product. My father was in a
    horrific helicopter accident and his best friend died on
    impact. He was in the backseat and had your harness on, and
    despite the helicopter being destroyed, he actually walked away
    from the incident with only bumps and bruises''.
        It's this type of mission, this type of capability, these
    products, would not be here today without the support of the
    SBIR program. You are going to hear a lot today about what the
    SBIR program is and is not. But I come to you as someone who
    used the SBIR program for what it was meant to do-transition
    real life solutions into the hands of the people that need it
    most.
        What I can tell you is the SBIR program should not be a
    welfare program to award 50 plus contracts to the same party.
    The SBIR program is an investment program, an investment in
    ideas to facilitate solutions that take what was a rope for
    decades, and make it into a technology solution. An investment
    to empower Americans and frankly, the market to validate scale
    and deploy new capabilities that never thought about until
    today.
        The SBIR program is a mission-focused initiative, that
    advances the objectives of the agencies it supports, providing
    structure and funding to enable companies to directly address
    these missions head on, whether for organizations like CALFIRE
    or the South Carolina Army National Guard. I wonder, would
    those crews have this capability today if the capability
    remained in the R&D environment. Yet at the end of the day, the
    SBIR program is the bedrock of transitioning the future into
    reality.
        Therefore, as you consider how to improve the SBIR program
    during the upcoming reauthorization, I encourage you to support
    the following. One, dedicated funding mechanisms for companies
    that can demonstrate, private sector demand for commercialized
    technology and government demand for innovative solutions. As
    we must provide the tools to transition and transition quickly.
        Two, the use of firm fixed price contracts for SBIR's
    default contracting vehicle, reducing the bureaucratic
    overhead, and allowing the SBIR program to take the small risk
    on people like me, and empower us to do something great.
        And three, limits on SBIR awards for those repeat
    offenders, specifically companies that continue to receive SBIR
    awards without commercializing a viable product from the vast
    majority of their SBIR awards, directly to the end user, not to
    a prime to an end user. In doing so, you'll prevent the SBIR
    program from becoming a welfare program, and keep it focused on
    being an investment vehicle to allow entrepreneurs like me to
    ideate, innovate, and create the critical solutions that don't
    just sit on the shelf for someone to talk about one day, but
    instead are used in reality, executing the mission that it was
    designed to complete. Thank you for your time today, and I look
    forward to your questions.
        [The prepared statement of Mr. Carr follows.]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chair. Thank you very much, Mr. Carr. And now I recognize
    Mr. Rothzeid for five minutes of testimony.

      STATEMENT OF MR. DAVID ROTHZEID, PRINCIPAL OF INVESTMENTS,
                    SHIELD CAPITAL, WASHINGTON, D.C.

        Mr. Rothzeid. Thank you, Chair Ernst, Ranking Member
    Markey, the members of the committee, Senator Rosen, thank you
    for the opportunity to testify.
        I'm an investor at Shield Capital, where I work with over
    40 early-stage startups, building technology at the
    intersection of national security and commercial applications,
    colloquially known as dual use technology. Before this, I spent
    over a dozen years on active duty as an Air Force acquisition
    officer, including at Defense Innovation Unit, where I helped
    pioneer a new model for working with venture-backed startups.
        The reality is that America's technological edge is
    eroding. While we maintain clear dominance in Iraq and
    Afghanistan, we face a very different challenge in the People's
    Republic of China, yet our defense and commercial technology
    ecosystems continue to operate in parallel universes. If we are
    going to win the global power competition, then we must
    leverage America's private capital markets backing the most
    innovative ideas.
        Private capital is critical to accelerating the development
    of next generation defense tech. Venture capitalists bring
    funding, expertise, and a culture of iteration needed to
    develop cutting edge capabilities. Venture-backed startups
    thrive on rapid R&D, allowing them to develop, test, and scale
    disruptive technologies efficiently.
        In recent years, the investment in defense tech has surged,
    growing from 8 billion in 2016 to 42 billion just last year,
    seven x increase. And this trend, it's driven by geopolitical
    instability and emphasis on streamlined processes from
    organizations like DIU and AFWERX, and a growing recognition of
    private capitals value in national security.
        The SBIR and STTR programs were created as America's seed
    capital for innovation, avenues for non-dilutive funding, which
    have contributed to major technological breakthroughs developed
    by venture-backed companies. These program, SBIR or STTR should
    be reauthorized, but with vital improvements. I outlined a
    number of policy solutions in my written testimony, including
    addressing an obstacle course that favors entrenched companies
    so-called SBIR Mills.
        A naval postgraduate school study found that of nearly
    5,000 SBIR companies, the top 25 alone secure 18 percent of all
    DOD Phase I And Phase II funding. That's over 2.3 billion
    between 2012 and 2021. Many of these firms focus on securing
    grants rather than fielding operational capabilities.
    Meanwhile, true high growth startups like the one here on my
    right, the ones building the technology of the future,
    organized to scale, employing thousands, and attracting
    billions of private capitals, are often locked out. We must
    ask, shouldn't America's government backed seed capital be an
    entrepreneur's first step and not a bureaucratic bottleneck?
        Even when startups win SBIR awards, too few transition to
    Phase III procurement contracts. That same MPS study found that
    only 16 percent of SBIR companies transition beyond Phase II,
    the rest remain stuck in perpetual R&D. Programs like TACFI and
    STRATFI in the Air Force and Space Force and Catalyst in the
    Army provide a model for bridging this gap.
        As a former acquisition officer, it is these types of
    programs that would incentivize a federal government program
    office to engage with SBIR companies rather than ignore them to
    the purview of government labs. Without these transition
    pathways, startups struggle to gain meaningful traction and
    investors hesitate to back them.
        At Shield Capital, we have four startups that have
    successfully transitioned from a SBIR Phase II to winning a
    STRATFI contract, enabling them to integrate into emerging
    programs of record. We expect these startups will likely
    graduate from the SBIR program, creating an onramp to scalable
    operational technology. This is the paradigm we need to solve
    for.
        VC financing on a grand scale-it is small but mighty force.
    Just like SBIR within federal R&D, by working together, we
    ensure that SBIR will be a true launchpad. Venture-Backed
    startups will gain a real onramp into government markets, and
    both private capital and federal investment can work together
    to co-fund the technologies our war fighters need.
        R&D-it's a bipartisan issue that impacts the workforce and
    economy of every state in America. Chair Ernst, Ranking Member
    Markey, your states represent two critical sectors of American
    innovation. Iowa's ag tech drives food security, while
    Massachusetts biotech sector pioneers' life-saving
    advancements. Neither thrives without investment, scale, and
    clear pathways to impact.
        In conclusion, I want to thank all the members of the
    Senate Small Business Committee. Now is the time to modernize
    SBIR as a bridge between government needs and America's private
    capital system. The golden age of American innovation will not
    be won by government funding alone, it will be secured by
    unlocking the full potential of America's arsenal, leveraging
    our free market system, ensuring economic prosperity, and
    national security resiliency. I look forward to being a
    resource and answering your questions. Thank you.
        [The prepared statement of Mr. Rothzeid follows.]
       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chair. Great. Thank you, Mr. Rothzeid. And now I recognize
    myself for five minutes of questions. We'll move into
    questions. So, we'll start with you. Mr. Strawhacker, thank you
    for your amazing work and support of small businesses in Iowa.
    I am very familiar with what you do, and thank you for it.
        I believe it's in our national interest to scale the best
    technologies with strong potential to solve America's
    challenges no matter where they are located. What bureaucratic
    obstacles exist for small businesses who are new to SBIR and
    what reforms should Congress consider?
        Mr. Strawhacker. Thank you, Chair Ernst, for that question.
    As I mentioned in my testimony, local support is critical for
    early-stage development, particularly when it comes to learning
    about what these programs can and cannot do for companies. The
    expo that we jointly host in the state has done tremendous work
    in educating people about these resources, but it has also
    brought federal agency representatives to our state to have
    firsthand conversations with those business owners. That's
    where I believe the most work occurs.
        When someone can sit down with someone who can answer their
    questions, right then and there, and provide firsthand
    technical assistance in the moment, leads to significantly
    better planning as people start to enter this space.
        In 2022, the year before the expo was launched, we held a
    very similar event. And while it was impactful--because it was
    the first one that we had done in quite some time, it was very
    difficult to get a lot of our agencies to come and have a
    presence at that event. Those that did come, were blown away by
    the amount of innovation that occurs in our state.
        Thankfully we have many more of them coming to our event
    right now. But in addition to the expo, the other things that
    were mentioned in the testimony such as introducing a smaller
    Phase I award, will be very helpful as well as increasing the
    transparency and feedback when awards are not approved. Thank
    you.
        Chair. Thank you. And if we could move on to you, Mr.
    Rothzeid. In your written testimony, you stated, ``innovation
    thrives in a competitive market where the best ideas rise to
    the top''. Over the past five years, just 10 percent of DOD's
    SBIR/STTR funding went to companies without prior government
    contracts. I'm concerned about whether SBIR is living up to its
    potential, and from what I've been able to see, a system so
    skewed towards the status quo and entrenched players is not
    utilizing competition to drive the innovation America needs to
    stay ahead. So how can we ensure real and open competition in
    the SBIR program?
        Mr. Rothzeid. Thank you, Senator Ernst. And I agree with
    you, it is not okay that only 10 percent of SBIR recipients are
    new entrants. This ought to be seed capital for the next
    emerging ideas. I think one of the major bottlenecks for that
    program is the idea of these esoteric, very nuanced, specific
    topics that are clearly wired for specific companies based on
    prior existing relationships with a company and government
    labs.
        If we can start to generalize the topics more around
    different technology areas that an innovator can come and
    create a new solution around, that is what's going to create
    disruptive technology for the future. It's also what's going to
    address the problems for the program officers that are
    responsible for fielding operational equipment to the war
    fighters.
        The labs have a different perspective with R&D, versus the
    program office that are trying to deal with near and dear
    issues. Additionally, I do find it hard to believe that a
    company, a small business, can work on a myriad of different
    technology areas. For my startups any more than two or three,
    and they're very tapped out. So, we sort of have to ask
    ourselves, why is there such a market efficiency where a
    company can still be a small business, but work across a dozen
    different SBIR at the same time? Thank you, ma'am.
        Chair. Thank you for pointing that out. I appreciate it.
    And I will now turn to Ranking Member--Oh, I can, yes, sir, I
    can. I will now turn to Senator Rosen for her questions. Thank
    you.
        Senator Rosen. Thank you, Madam Chair, thank you. Senator
    Markey. I have a 3:30 and I didn't want to miss, this is such a
    great hearing and it's so important. And I just want to thank
    you all for your ideas, for your energy to bring them into
    reality and to really think out of the box when you see a
    problem, be that those real problem solvers, and it is very
    exciting. This is a great committee to see the entrepreneurship
    and the way people think.
        And so, the SBIR, the STTR, the programs, they're just
    critical sources or capital for startups, and for people who
    see a problem and think, how can I make it better? How can I
    fix it? How can I find that solution? But unfortunately, some
    states aren't receiving their fair share of this vital R&D
    funding.
        Like the Chair, State of Iowa, Nevada sadly is ranked in
    the bottom third of SBIR and STTR award recipients. In 2023, we
    received only 23 of the SBA awards compared to the national
    average of 118 awards per state. I hope to maybe move that up.
    But the Federal and State Technology Partnership Program was
    created to address this gap. The FAST program provides funding
    to economic development entities, research institutions, and
    that in turn provide that technical assistance and support to
    the small businesses who are applying, you often just don't
    know how to get started, right? That's a big issue.
        So FAST Mission to strengthen the competitiveness of
    underserved businesses seeking the SBIR/STTR grants, it's
    critical. And Congress, I believe must continue to support it
    alongside its innovation initiatives. So, Mr. Strawhacker, as a
    FAST recipient, I know you know how important it is, can you
    discuss the ways your SBDC has better served businesses who
    struggle to navigate the SBIR/STTR process. And what challenges
    are you facing that we can address here?
        Mr. Strawhacker. Thank you, Senator Rosen. You are
    absolutely correct that the FAST program is tremendously
    valuable to this overall equation, but it does play a
    complimentary role to the business owners and the innovators.
    We are there to connect them to resources, connect them to
    people who can ultimately invest in these companies. But it's
    their idea and their innovation that drives us forward.
        We have brought on a myriad of different proposal
    development tools. We have sent our advisors to as many
    trainings as we can possibly get to. And I'm confident in
    saying that the proposals coming out of Iowa right now are as
    strong as they have ever been.
        We have developed deeper partnerships with state agency,
    Iowa Economic Development Authority, who provides some of the
    matching funds. But there is still a lot of work to be done. I
    hope that other states will look at implementing an
    entrepreneur expo where they can bring firsthand agency
    representatives.
        Senator Rosen. I've already written that down. We're going
    to contact you on that.
        Mr. Strawhacker. Happy to share any details. Thank you for
    your question.
        Senator Rosen. Thank you. I want to talk a little bit about
    rural business access to SBIR funding. Because we know small
    businesses are the key economic drivers in every Nevada
    community, in fact, Nevada is known for our large, obviously,
    casinos in Las Vegas, but to be honest, 99 percent of
    businesses in Nevada are small businesses. They bolster our
    industries, they support the good paying jobs, local jobs. It's
    true both urban and rural.
        And despite their importance, rural small businesses
    historically face a lot of challenges accessing capital and
    small business resources, I know you know this as well. So
    again, I'm going to stick with you today, Mr. Strawhacker. What
    challenges do you think the rural businesses have and how can
    we help them address that maybe more specific need they have
    and the ways the FAST program can really better connect our
    resource partners to the SBIRs?
        Mr. Strawhacker. Thank you, Senator. It is often remarkably
    difficult to physically get to certain parts of rural states.
        Senator Rosen. You've been to Nevada, so, you know, deep
    frontier, rural states, most mountainous state in the lower 48,
    I might add.
        Mr. Strawhacker. I did not know that. Thank you.
    [Laughter.]
        That is why we have utilized the longstanding success of
    the SBDC network to come alongside the FAST program. We have 15
    offices strategically located around the state of Iowa through
    11 partnerships with community colleges. And then four centers
    hosted by our three public institutions in the state.
        Those people are in the community where those business
    owners are developing their ideas. They're constantly
    networking with different economic development agencies,
    different lenders. They serve as the pipeline for that
    technology-based business into our technology and
    commercialization center who can ultimately get them to that
    finish line.
        Senator Rosen. Well, good. We might be reaching out to you
    for some connection with Nevada.
        Mr. Strawhacker. Absolutely.
        Senator Rosen. Thank you all for being here and what you
    do. And thank you again, Senator Markey, Madam Chair.
        Chair. Yes. Thank you so much, Senator Rosen. Next, we'll
    go to Senator Husted for five minutes of questions.
        Senator Husted. Thank you, Chair Ernst. Appreciate that. So
    business is hard. Many startups fail, particularly if you're in
    tech because there's somebody else out there, all the time,
    who's also innovating and trying to identify a path, a use for
    their technology.
        And how do you go about the process of identifying who
    should receive assistance, who shouldn't? Because in a
    marketplace, it's so much easier in the sense that when it's
    your real money and it's your decision, you are far more
    discerning than when it's not. And so, how does that process
    work right now? And how can we make it more like how a real
    marketplace works? And I'm open to whomever can answer that
    question the best.
        Mr. Carr. I mean, I'll jump in, it's an elevator pitch. At
    the end of the day, it's a quick white paper with a quick
    summary, 1, 2, 3 pages, and that's it. The reality is, the SBIR
    program has continuously gotten longer and longer and longer in
    regards to its proposals. I can tell you with a team of three
    people working in a garage, I did not have time to write a
    hundred-page proposal. I have an elevator pitch. And the
    question is, are you-as the person on the other side, willing
    to buy into that elevator pitch or do you think that something
    else should be awarded instead?
        Senator Husted. And does the process that we're using in
    this, is it entrepreneurial enough? Does it work?
        Mr. Carr. I think the bureaucracy, as much as I would love
    to make it simpler, it forces you to be an entrepreneur.
    Because at the end of the day, you got to figure out how to
    navigate the market. And if you're trying to navigate the U.S.
    government, you've got to learn and be that entrepreneurial
    self to be able to figure out how you complete that navigation.
        And so, from my perspective I believe a lot of the
    proposals, supporting, making that elevator pitch much easier
    for smaller companies to make it, you will continue to see more
    and more entrants coming into the program to be able to
    validate whether it's real or not.
        Senator Husted. As I was doing a little research on this,
    one of the common complaints is that, hey, the people who do
    figure it out are the ones who are getting all the money. And
    the people who haven't figured it out, you know, and there's
    just a barrier that it's like a mystery of, what door I go into
    and how I do this? How do we improve upon that?
        Mr. Rothzeid. Well, if I may, you know, I've been somebody
    on the other side as a government evaluator. And a big part of
    it, because on certain areas, you get so many proposals that
    you try to take the easy way out, and you say, who didn't cross
    their t and dot their i perfectly. And so that sort of
    sentiment certainly favors those who have gone through the
    process before because they're able to rinse and repeat a lot
    of their proposals going forward.
        And I think that's why with Chair Ernst and her
    recommendations of putting a cap, sort of gets us away from
    being more process oriented and more about the spirit of the
    idea. Because when the same companies can submit 50
    applications at a time in a given window, and the resources to
    be able to evaluate all of the incoming solicitations, there
    has to be a level of empathy for the reviewer on the government
    side.
        As a venture capitalist, I take pitches all the time.
    Right? I've got three more scheduled later today on different
    companies. Most of them are going to receive a no, and that's
    just the reality. Because I'm looking at the competitive
    marketplace, the ins, you know, how good is the founder? What
    is the opportunity for them to sell into? These are difficult
    things that you learn over years and reps. And our government
    stakeholders don't necessarily have that same background, but
    we just need to make it easier for them to evaluate less
    companies.
        Senator Husted. Thank you. My time is going to run out. And
    I want to ask a question because I'm not sure how to do. Is it
    more difficult the way we set up particularly for our
    contracting with the U.S. military? I was told one time that
    small businesses--that the big contractors welcome them as long
    as they stay in their box. And if they can't have a they really
    try to--we have bidding rules that make it hard for a small
    business to do entry. Is that accurate for anybody who's worked
    on that?
        Mr. Carr. I can jump up and say absolutely not. As a
    lawyer, one of the best things I ever did was go to law school,
    because I'll tell you the NDAs that I signed with some of the
    big primes, they take your IP, they absolutely take the
    knowledge, the idea, and then they fit you into that box, and
    they force you into that box.
        Senator Husted. And you must stay in that box.
        Mr. Carr. You must stay in that box, which is completely
    against the idea.
        Senator Husted. Yes. Madam Chair, an opportunity maybe to
    explore that issue on another occasion. Thank you.
        Chair. Yes, absolutely. Thank you, Senator Husted. And
    Senator Markey, we'll go back to you.
        Senator Markey. Thank you so much. And I agree with--
    listen, this whole idea of the big companies, like Microsoft
    just swiped the browser idea, you know, from Netscape, just
    swiped it. Oh, we're going to give it away. We've innovated it
    so we can give it away--the Internet Explorer. Big companies
    actually don't make breakthroughs, it's just a joke, they steal
    it from younger companies, whoever, they'll buy it up. But a
    lot of stealing goes on. You got to protect these people from
    the highway robbery of Silicon Valley companies. They just put
    more police on that beat.
        The SBIR and STTR programs provide small businesses early-
    stage funding when private sector funding is less likely. Many
    small businesses have said that without SBIR and STTR funding
    their businesses and the technologies that they successfully
    develop may not exist.
        More often than not, companies utilize SBIR to develop
    technologies that ultimately reach the market to benefit
    Americans across the country and provide critical technology to
    the government. So, Dr. Mahmud, can you speak to the impact
    that SBIR and STTR funding have had on Tritons ability to
    innovate technologies that benefit everyday Americans?
        Dr. Mahmud. Thank you, Senator, for the question. So, as I
    had mentioned at the beginning, just because of the passion of
    our employees, we do target benefiting the war fighter for a
    lot of the technologies that we develop. And it turns out in
    many cases that the technologies have a dual use. In fact, in
    our business model, when the technology has a commercial use,
    we completely spin off the company to go raise money in the
    venture capital market, as has been discussed. Because the
    commercial market operates, you know, the venture capital
    industry has very tight timelines and expectations, as was just
    mentioned.
        So, one example that I can cite, which is benefiting
    everyday Americans, is when we started and we created a spinoff
    for a sensor technology, a location sensor technology, and the
    application--the biggest application turned out to be for a
    heart pump. A heart pump that is used as I had just mentioned,
    for Cardiac disease, heart attacks and cardiac disease are the
    number one cause of deaths, for Americans.
        This heart pump used this sensor, they enabled the heart
    pump to become the smallest heart pump and heart pumps are
    inserted through the artery, it has to be very small. And so,
    it enabled this technology and that heart pump is now widely
    used. So, this is an example of something that has widespread
    application, but did come from an SBIR technology that was
    targeting a different application.
        Senator Markey. Again, half all SBIR and STTR awards are
    made by the defense department.
        Dr. Mahmud. Correct.
        Senator Markey. The Defense Department has to approve these
    SBIR awards, this is the technology the defense department
    wants, to protect our country. And, ultimately our advantage
    over China or any other country is that we're technologically
    superior to them.
        My mother would always say to me, when she was disappointed
    in me as a boy, she would say, Eddie, your father and I are
    going to donate your brain to Harvard Medical School, it's a
    completely unused human organ. Okay? So, you have to learn how
    to work smarter, not harder. So that's what technology is, and
    it has to be the best technology if you're going to surpass the
    Chinese, this is a ruthless Darwinian world that we're in right
    now.
        So, in your opinion, doctor, does the Defense Department
    make those kind of ruthless Darwinian decisions to enhance our
    defense capability when they're deciding who gets these SBIR
    awards?
        Dr. Mahmud. I can only speak to my company's experience; I
    can't speak to DODs practices. In our experience, we tend to
    focus on trying to understand what the gap is for the war
    fighter. We focus a lot to understand that. Oftentimes the
    commercial application may not be obvious to us. And when we do
    find a commercial application, as I said, we spin off the
    company to raise money in the venture capital market.
        And as I've showed in our examples, when we understand the
    problem, and I'll give you the example of the F-35, there was
    two problems there. One is of course sustainability costs, the
    source was a foreign source, and then the second problem was
    that it was causing a significant health hazard to the war
    fighter, the maintenance depots, and the service depots.
        And so, we worked with the primes, and as I mentioned, you
    do have to work with the primes because they own the F-35. They
    own most platforms. We work with the primes closely to
    incorporate this new material to solve this problem, which as
    the Air Force has announced, is going to save them over a half
    a billion dollars. So, I'm not sure if I answered your
    question.
        Senator Markey. Well, you did. You have a technology that
    the military's going to use, would work smarter, not harder,
    saves money, you know, it works better. It's a smart
    technology. And you did it in conjunction with the Defense
    Department wanting a solution and you did it with the prime,
    but the prime itself wasn't coming up with the answer. And the
    SBIR incentivize you to find the answer to the problem. Is that
    correct?
        Dr. Mahmud. That's correct, Senator. And if I may add, you
    know, cost savings that we bring to the government, like in
    this case, and there are other cases, there's another case
    where we save $200 million for the F-22 platform. They do not
    show up in any metrics. None of our metrics, SBIR metrics,
    success metrics, they don't show up.
        So, it's highly unlikely if we don't solve this problem
    that anyone else will do it. Because there's no financial
    incentive for most companies to take on a problem that has a
    low return for the company, relatively speaking, versus the
    government.
        Senator Markey. And if I may, so you are saying essentially
    venture capital money is looking to make a big profit. And here
    there's not a big profit, but there's a big problem that has to
    get solved by the Defense Department because of some medical
    condition that they want to see solved.
        Dr. Mahmud. I will just say, you know, our spinoffs are
    very active in the venture capital market, so we understand,
    you know, how the venture capital market works very well. I
    will just say that there are problems that are debilitating and
    life-changing and very, very difficult for the war fighter. I
    just mentioned the hearing loss problem. The hearing loss
    problem is a significant problem for the war fighter.
        The F-35 problem was really exposing them to a lot of toxic
    dust. The bladder relief problem which we worked on, and is now
    being evaluated by the pilots in the Navy and the long-range
    recon missions that the Air Force is running over our
    adversaries. You know, there is no restroom for female pilots.
    There is no solution. You know, some pilots practice tactical
    dehydration. It is not a good situation. And, you know, we came
    in with a solution that was optimal for female pilots, female
    aviators actually. And also, for male aviators now.
        So, these are not problems that the traditional marketplace
    looks to address because the market is too small. There's only
    so many pilots. There's only so many--the market is just not
    big enough to attract those investments. And those are the ones
    where we feel we have brought tremendous benefit to the war
    fighter.
        Senator Markey. Thank You, doctor. Thank you.
        Chair. Thank you. And I now recognize Senator Shaheen.
    Thank you.
        Senator Shaheen. Well, thank you Madam Chair and Ranking
    Member. I'm delighted that we're doing this hearing on the SBIR
    and STTR programs. Thank you to all the witnesses for being
    here. I apologize for missing your testimony. I was at Armed
    Services hearing subcommittee, so that's why you weren't there,
    Senator Ernst. [Laughter.]
        Senator Shaheen. But the reason I'm so enthusiastic about,
    one of the reasons I'm so enthusiastic about the SBIR program
    is that it was created by New Hampshire Senator Warren Rudman
    back in the 1980s. And so, I've had a chance to see it up close
    from that time to see how it's grown and to see the difference
    that it's made for small business in New Hampshire. And I know
    that you have stories about the differences that it's making in
    Massachusetts and Iowa and across the country.
        And you may have already asked this question, question,
    Senator Markey, because I just came in on the end of it. But as
    I understand Dr. Mahmud, in your testimony, you described
    millions of dollars in savings to the Defense Department from
    SBIR work that your company has done. And do you know if those
    savings are counted in statistics about the SBIR return on
    investment or on in the commercialization data that's provided?
        Dr. Mahmud. Thank you, Senator. I did, you missed that
    part, that question was asked, but I will repeat that. Thank
    you for asking that. So, you know, cost savings that we realize
    for the government and just as importantly benefits to the war
    fighter's health, preventing hearing loss, once a war fighter
    is exposed to noise, and they are exposed to a lot, air crews
    are exposed to a lot of noise, it is a permanent condition,
    it's impossible to reverse it. It's very difficult to reverse
    it, I should say. It's not impossible, it's very difficult to
    reverse it.
        And I also mentioned that the VA, there's a million
    veterans with hearing loss right now, and 2 million with
    tinnitus, which is related. So, we have focused in terms of our
    support to the war fighter on developing technologies for air
    crew protection that's being qualified for Army helicopters.
    And we are developing bladder relief for female pilots for long
    distance recon mission.
        Senator Shaheen. I did hear you talking about that.
        Dr. Mahmud. Okay. Thank you.
        Senator Shaheen. Apologize my attention because you were
    talking about hearing loss, and we have a New Hampshire company
    that's developed a new hearing protection helmet system for
    aircraft carrier deck crew for that very reason. And they
    estimate that the Navy's going to save about $500 million
    because of their SBIR award. So, it is something that I think
    we ought to think about how we include that information in the
    statistics about the program.
        Mr. Strawhacker, I think you talked about working together
    with neighboring states on the FAST program. Do you think more
    funding for FAST would help with those partnerships and or how
    can we encourage that kind of collaboration?
        Mr. Strawhacker. Well, I do think that that type of
    collaboration should definitely be looked at being implemented
    everywhere across the nation. Especially those FAST awardees
    who exist within an SPDC program. We already have a nationwide
    network that builds in geographic subgroups, that meet together
    some annually, some quarterly. I know the Southeast area is
    very strong in the SPDC network.
        Those that have the FAST grant in addition to the SBDC
    program, have that natural group already there. They just need
    to tap into bringing the right advisors to the table and having
    that. The FAST grant plays a complimentary role to the business
    owners, they are the innovators, it's their technology. They
    just need us to support them and help them access the correct
    resources. Thank you, Senator.
        Senator Shaheen. Thank you. Dr. Mahmud, I know that there
    has been some discussion about limiting the number of awards
    that a business can get through the SBIR program. And I would
    ask you and others on the panel, if that's something that would
    be helpful. I know that we have a number of companies in New
    Hampshire that have been very successful at getting multiple
    awards, and I would hate to have them be limited in what they
    could get. So, I don't know, maybe you could speak to that and
    others could speak to it if you have a view on that issue.
        Dr. Mahmud. Sure, thank you, Senator, for the question. I
    think one of the most powerful foundations of the SBIR program,
    it was set up very wisely, that the agencies have a tremendous
    amount of flexibility to adapt the program to their mission
    needs. So, they have the flexibility to decide on limiting the
    number of applicants. They have the flexibility to decide on
    how many open topics, they have tremendous flexibility to
    adjust to what they need.
        So, you know, from our view, we support the mission of the
    agencies. And if we are allowed to, if we see a problem, we'll
    put in our idea. And if it is a good idea or the best idea, it
    is often recognized. And if it's not, its not. We think the
    tent is wide and we have a shrinking defense industrial base.
    We have no opportunity to take out good ideas. We are not going
    to win if we take out good ideas. So, there's no reason to cap
    good ideas.
        Senator Shaheen. Thank you. I'm out of time, Madam Chair,
    but I don't know if anybody else would want to speak to that?
        Mr. Carr. I would just add, so I'm a large proponent of
    putting some type of cap in, especially for Phase I and Phase
    II. And the specific reason for it, is we're talking about
    small businesses here, we're not talking about primes. If
    you're a small business, I can't chase 20, 30, 50, a hundred
    different technologies with different market applications and
    different things. I can't raise money for it. These guys would
    never give me money. Because the reality is, I've got to be
    super focused as an entrepreneur, to be able to scale that
    capability into an actual product and then naturally into a
    company.
        So, if we have companies that have hundreds of different
    products and technologies, what are they working on? And in
    fact, I would argue that they're absolutely getting
    disincentivized to be able to take that one particular
    technology that we say.
        Senator Shaheen. And do we have any that fit in that
    category? Is there information that shows that we have multiple
    companies that fit into that category?
        Mr. Carr. I would argue that SBIR Mills would be the way to
    do it.
        Senator Shaheen. And do you also feel that way if it's done
    not simultaneously, but serially, so the company gets an award,
    is successful, then applies again, and gets another award and
    is successful or not, applies again. Are you concerned about
    that aspect of it as well?
        Mr. Carr. I mean, for us we actually--because of the dual
    use aspect of the SBIR program going into, we actually
    diversified into construction cranes and now stabilize loads on
    suspended cranes. But it's tangential technology specific to
    what we are building. What I would argue there is that if it
    continues to be linear and you go from one technology to the
    next, are you really exiting the business or are you just
    continuing to basically create kind of a new product at the
    bequest of the U.S. government, i.e., the SBIR program, but
    never taking that to the final step, which is, Hey, you're my
    customer. How do I get this to you? And how do I get it to you
    as fast as I can? But not just you, but the whole market as a
    whole.
        Senator Shaheen. Thank you. Thank you, Madam Chair.
        Chair. Thank you. And Senator Budd, you are recognized for
    five minutes.
        Senator Budd. Thank the Chair and thank you all for being
    here today. Mr. Rothzeid, every day I hear from small
    businesses in North Carolina particularly small businesses with
    innovative solutions to real problems facing our war fighters
    who discuss challenges to working with the DOD. We hear it all
    the time.
        So, the PPBE reform report, or the commission on Planning,
    Programming, Budgeting and Execution, I'm sure you're familiar
    with it, highlights the barriers to new and emerging defense
    companies in working with the DOD. Specifically, PPBE
    commission finds that ``A challenge SBIR faces, is that
    promising Phase II projects are not deployed as often as would
    be preferred by the DOD.'' So, what do you see as the principal
    barriers to Phase II projects deploying further within DOD?
        Mr. Rothzeid. Thank you, Senator Budd. And I would just
    recognize that the managing partner of Shield Capital Raj Shah,
    was one of the commissioners on the PPB and E.
        Senator Budd. You might have a little insight then.
        Mr. Rothzeid. So as far as you know, the transition rates
    which I highlighted in my testimony being about 18 percent,
    moving from Phase II to Phase III, is a low number. And I'm not
    here to argue that it needs to be a hundred percent right.
    We're talking about seed innovation; we're trying out ideas.
    The war fighters can provide feedback. If it's not meeting a
    need or if it's not a scalable need, then there's no need to
    continue it forward.
        But I think one of the areas that really hampers the
    Department of Defense is, while you can win an SBIR in the year
    of execution, so within this current fiscal year, the planning
    programming and budgeting, and execution is inherently a two
    year long process. So, there's no gap year to be able to fill
    that need, so that what the war fighter likes and sees and
    wants to scale, they now have to sort of sit on their hands and
    wait for the PPB and E to now catch up for the ensuing fiscal
    year, often two fiscal years ahead.
        And that can be a really big challenge for a company that
    is trying to sell a product that is very specific to the war
    fighter. Now, in a lot of cases in the companies that we invest
    in, they're dual use tech. So yes, we want them to sell to the
    Department of Defense National Security, we also want them to
    be selling to the commercial environment. That sort of leverage
    provides them an opportunity to stay afloat while the PPBE
    cycle catches up.
        However, why should our war fighters have to wait for a
    solution that they need today? Right? We're working for a
    readiness that allows us to be prepared tomorrow.
        Senator Budd. So, in simple terms, what's the fix there?
    Other than just getting cash flow, I imagine from the
    commercial applications.
        Mr. Rothzeid. Absolutely. And so, one thing that the
    Department of the Air Force came up with in March of 2020 was
    the STRATFI/TACFI program. And it allows them to leverage
    additional SBIR funding up to 15 million with just SBIR
    funding, to carry forward on promising technology that has
    matching funds. In that so far as the DOD has non SBIR funding
    allocated to them, and they've also erased third party venture
    capital.
        Senator Budd. Okay. So, you mentioned that 18 percent kind
    of make that gap over to Phase II, right?
        Mr. Rothzeid. From Phase II to Phase III.
        Senator Budd. Phase II to Phase III. So, 82 percent don't.
    So, with this new system, if you will, in place that you just
    mentioned, what does that number go to? It goes from 18 percent
    to--what would you estimate it to be?
        Mr. Rothzeid. Well, with the reality of an opportunity
    cost, where now more of that funding that would've gone to fund
    more Phase I, more Phase IIs being put into this other bucket
    of STRATFI or a bridge if you will, you're probably going to
    see a shrinkage of the amount of total number of SBIR Phase I,
    Phase IIs, a larger number of opportunities to transition to
    Phase III. I would expect it to go more to the 35 percent,
    ideally doubling.
        Senator Budd. And you're saying in that 82 percent, which
    would diminish in this scenario, the 82 percent fails. There's
    a lot of good useful things. It doesn't, need to be a hundred
    percent that passes, but the 82 percent that fails, there's a
    lot of useful things in there for our war fighters that are
    unnecessarily failing.
        Mr. Rothzeid. Unfortunately, that is the case.
        Senator Budd. Okay. The PBBE Reform Commission also
    recommended aligning the SBIR program to the DOD overall
    science and technology strategy by ensuring that the
    programming and budgeting process includes specific analysis of
    SBIR and STTR projects as budget requests are being developed.
    So, can you speak to your views on that recommendation?
        Mr. Rothzeid. I'm sorry, sir, I wasn't quite following.
        Senator Budd. So, I think there's the question of, they
    want to align the PBBE Reform Commission, they want to align it
    with the DoDs overall science and technology strategy. And they
    want the budgeting process to include specific analysis of SBIR
    and STTR projects as the budget requests are being developed.
    So, do you have any thoughts on that?
        Mr. Rothzeid. I would just say that 11 of the 14 critical
    technology areas as identified by the Department of Defense, 11
    of them are commercially developed. We need to align our S&T
    strategy with where the emerging market trends in the
    commercial sector are occurring, and make sure we are providing
    healthy amount of financing in those areas for DOD programs.
        Senator Budd. That's very helpful. Thank you all.
        Chair. Thank you, Senator Budd. I'll go ahead and start, if
    you'd like a second round.
        Senator Markey. If I may, if you don't mind.
        Chair. I'll go ahead and--if you want to go ahead, I'll
    close up after you. Absolutely, Ranking Member, go ahead.
        Senator Markey. No, I thank you so much. Two weeks ago, the
    House Small Business Committee held a hearing on SBIR and STTR
    where Chairman Williams in the house, talked about the
    importance of preserving merit-based competition in the
    program. He said, innovators thrive in an environment where
    competition reigns supreme, where they are free from the
    limitations or caps on their success. And I agree with that. We
    should prioritize merit without adding extra layers of
    bureaucracy.
        So, Dr. Mahmud, through Triton Systems we have seen great
    success in meeting the increased commercialization benchmarks
    for experienced small businesses. And I understand that the
    company did not meet the increased transition benchmarks
    leading to a limit on the number of Phase I and direct to Phase
    II awards Triton can receive. How have these caps impacted your
    company's strategy in determining what you would be proposing
    in the future?
        Dr. Mahmud. Thank you, Senator, for the question. I think
    we can all agree that the commercialization benchmark, this is
    what everybody's talked about, is very important. Everything
    needs to have a purpose. Everything needs to--we need to
    maximize commercialization. That's how all companies should be
    measured, at least in my opinion. The Phase I to Phase II
    conversion metric does not have a commercialization meaning,
    you know.
        For example, we just talked about bringing in more
    companies, giving out a lot of Phase I awards. Air Force did
    that, by the way. They gave out a lot of small Phase I awards,
    and then maybe they had one or two Phase IIs in mind. I don't
    know.
        Senator Markey. Maybe they had one or two?
        Dr. Mahmud. Phase II's in mind. Because they want to see
    what's out there. So, this is the idea, is to make small
    investments and capture the best idea. So, I certainly don't
    feel that the Phase I to Phase II conversion metric carries any
    commercialization meaning.
        Having said that, the Phase II awards as was discussed
    here, it was just discussed in a number of questions.
    Oftentimes the small business has no control, the need may have
    gone away. The customer no longer needs it, or the agency no
    longer needs it, or there's no funding. Or they will award
    many, many Phase Is and determine one Phase II. So, what we
    have done based on these new benchmarks is really become
    extremely risk averse and we only focus now on Phase Is where
    we totally understand how to transition this, you know, what is
    the best endpoint----
        Senator Markey. So, you just look now at surefire
    commercialization?
        Dr. Mahmud. That's right. We do not take high risk.
        Senator Markey. You don't focus as much on the breakthrough
    technology that can be transformative because it's not a
    surefire commercialization yet. We need to be taking the risk
    to find the breakthrough because, in China, they're throwing
    tens of hundreds of billions of dollars at the breakthroughs.
        Dr. Mahmud. Correct. We do not pursue high risk
    opportunities even if we have a good idea because we are not
    sure what the outcome is.
        Senator Markey. Which is very, very helpful. And can you
    explain the process of transitioning from proof of concept, or
    a Phase I award, to a Phase II award and how rigorous that
    process can be even for the most innovative technologies? Dr.
    Mahmud.
        Dr. Mahmud. Would you like me to explain the process, or
    excuse me, I didn't catch the question?
        Senator Markey. The question is, can you explain the
    process for transitioning from a proof of concept or a Phase I
    award to a Phase II award? How rigorous is that process?
        Dr. Mahmud. I'd be delighted to. So, you know, the, the
    philosophy of the SBIR program is to invest low in the Phase
    I's and then to see which of these proof of concepts is
    demonstrated. That's the process. But agencies have very
    different practices, as I just mentioned. Some may have a path
    to a Phase II, some may have no funds for a Phase II, this
    happens quite a bit. So, the agency itself may not have a plan
    on moving it forward, and oftentimes the need goes away.
        So, the process for a general small business is understand,
    you know, if you can show the concept in the Phase I, then
    compete to demonstrate you have the best solution for the Phase
    II. And you know, that's the process. But as I said, because
    the agency practices are very different and the situations are
    different, the Phase II may become irrelevant, and then the
    small business has no control.
        Senator Markey. No, and I thank you for that. And I thank
    all the witnesses. I thank you, Madam Chair. And I can just
    finish up, if I may, just by saying that we've heard the word
    ``Mills'' thrown around today disparaging some of the most
    innovative and dedicated small businesses.
        Massachusetts is proud of its mill culture. Our economy was
    built off of the textile mills during the Industrial
    Revolution. The only reason Thomas Markey left Ireland to go to
    Dover, New Hampshire was the mills were in Dover, New
    Hampshire, where Senator Shaheen's husband was being raised. So
    that's the only reason I'm here--is those mills.
        And today the Senate Republicans, they're trying to paint a
    picture that innovative, ambitious, and productive small
    businesses or ``mills,'' as they like to call them, are bad.
    These mills that they want to end, they're small businesses
    that delve into novel ideas and bring them to reality. They are
    small businesses that develop cancer therapy technology and the
    world's smallest heart pump. Small businesses that save
    hundreds of millions of dollars for the federal government and
    have a huge return on investments, small businesses that
    advance the national security interest of our country.
        If being a mill means being an efficient and effective
    small business innovator, then I don't think that's a bad
    thing. And Massachusetts and many other states are hubs of
    innovation, and that's why we produce such tremendous
    technology. And we don't have big businesses that much in
    Massachusetts that drive our economy, we have small businesses
    that come up with good ideas that serve our nation and save
    lives, especially in this defense sector. Okay, this is where
    we specialize.
        Department of Energy is high on the list as well, but 80
    percent as we know of the Department of Energy budget is just
    nuclear weapons, nuclear management. Right? You need the
    smartest people thinking about that, NASA all the way down the
    line. Those are the agencies that are asking for these
    technologies to be invested in, okay? And it's to keep us ahead
    of our geopolitical rivals in the rest of the world. It's using
    our brain power, and we just have to ensure that these small
    businesses are able to freely compete for government funding
    and are not penalized for their excellence. If someday they
    want to sell to a big company, Raytheon or Lockheed, that's
    their right.
        But the innovation's going to come for our defense and for
    many other areas, from these smaller companies, and that has to
    be the primary thing. Is it going to likely produce that
    breakthrough or not? And does the Defense Department want to
    take a risk over here with some breakthrough technologies that
    may or may not get the result they're looking for in the first
    or second round? Okay.
        That's the decision I think we have to make as a country.
    And I thank you, Madam Chair, for this very valuable hearing.
        Chair. Thank you. I do have just a couple of additional
    questions and we'll demonstrate why we think there is a need
    for reform. And so, Dr. Mahmud, again, thank you for being
    here. And please answer yes or no for this question. Are you
    aware of any ties between your leadership team, personnel, or
    spinoff companies with foreign countries of concern?
        Dr. Mahmud. May I answer the question?
        Chair. Yes.
        Dr. Mahmud. So, we are a cleared facility. We are audited
    by the Defense Counterintelligence and Security Agency (DCSA).
    We work closely with DCSA on vetting out any kind of foreign
    intrusion into the company. As I had just mentioned, when our
    spinoffs go out in the venture capital market, you know, we
    have no control of them. The spinoffs, you know, they will go
    and raise money in the venture capital market. We have no say
    on that.
        We have taken in consultation with DCSA incredible
    safeguards to isolate our technologies and our personnel from
    everyone, including the board and the management of our
    company. We have worked very closely with DCSA to do that
    because of this exact concern that spinoffs, we have no control
    over what they do.
        Chair. So, you are aware though, that there have been ties
    to countries of concern?
        Dr. Mahmud. I've read in the press. I am not personally
    aware, but I've read in the press that, you know, one of the
    spinoffs, has made--raised money globally. So, there is concern
    about that, and we cut off all ties with those spinoffs a long
    time ago.
        Chair. Okay. And just so for the record, Triton has
    received 902 SBIR/STTR awards, accounting for more than $350
    million. And that is really hard for me to explain to Iowans
    how someone who has received over $300 million can still be
    considered a small business. So that's really difficult for me
    to explain in the Heartland.
        So, I do want to enter into the record open-source data
    that I found on ties between Triton CEO and joint ventures with
    Triton spinoff companies. You did state that you can't control
    those companies, but they are ties between your spinoff
    companies and companies in China, and without objections, so
    ordered.
        Chair. So again, what we found in 2020, was that Tritons
    current CEO then was appointed to serve on the board of CITIC
    Capital Acquisition Corporation, which is a Chinese financial
    service sponsored by a state-owned financial conglomerate in
    China. Further, FRX polymer, a spinoff again of Triton,
    received $22 million from CITIC and pursued a joint venture
    with a Chinese company in 2019. Tritons biotech division also
    merged to become Chinook Therapeutics, which in 2021 pursued a
    joint venture with Pivotal bioVentures China.
        Triton, CEO was the chairman of FRX until last month, and
    was a board member of Chinook Therapeutics. I would like to
    enter into the record open-source data on these ties with
    China, and without objection, so ordered.
        Chair. I also want to point out the SBIR due diligence
    disclosures require Triton to disclose joint ventures and
    foreign investment. Spinning these companies off to do joint
    ventures and taking Chinese investment appears to be a
    loophole, and this track record should be accounted for when
    Triton applies for SBIR awards.
        Triton does not seem to care who they are selling taxpayer
    funded research to. This is a national security risk and why
    I've proposed strengthening the due diligence evaluation
    standards, to make sure agencies are catching all of this open-
    source analysis and making prudent judgment calls on who they
    award repeat contracts to.
        So, again, the SBIR mills, I understand that while there
    may be opportunity out there for these small businesses, I'm
    going to set the record straight with this. Success is not
    measured in the number of SBIR awards a company wins, but
    rather the commercial and mission impact made by leveraging
    SBIR dollars. I think a number of you stated that. We should
    not reward firms that game the system and use SBIR known by
    many as America's Seed Fund, as their primary revenue source,
    yet have fewer sales, fewer investments, and fewer patents as
    GAO reports.
        SBIR mills push out innovators in the heartland states like
    mine of Iowa, and like Senator Jackie Rosen's in Nevada. I have
    a hard time justifying again to Iowans that companies that can
    take hundreds of millions of dollars of SBIR grants can still
    pass as a small business. So those concerns outline exactly why
    I am pursuing changes to the SBIR/STTR program. I do hope that
    we will have a bipartisan bill that we will be able to move
    forward. We have been joined by Senator Young. Senator Young,
    do you have questions before we close today's hearing?
        Senator Young. Well, I do Chairman. Thank you so much,
    Chair Ernst, I thank the Ranking Member for holding this
    important hearing. Thank all of our witnesses for being here.
        As Congress continues to consider reauthorizing this
    important SBIR/STTR program, I think it's critical that we take
    this opportunity to review the framework, look for ways in
    which we can improve it. Relatedly, over the last year or so,
    I've had the privilege of chairing a commission, the National
    Security Commission on Emerging Biotechnology.
        And one of the topics that will be included in our report
    to Congress, is how China is outspending and out strategizing
    the United States when it comes to critical technology
    investment, and development of those technologies, especially
    in the area of biotechnology. And, and so I asked Mr. Rothzeid,
    how can the federal government better ensure that funds of this
    program are translating into material technology innovation,
    especially in the areas that require sustained capital to
    scale?
        Mr. Rothzeid. Thank you, Senator Young. In my mind, the
    only way that the U.S. can compete with China when it comes to
    technology is by leveraging its greatest asset, and that's the
    private capital marketplace, the envy of the world, because it
    attracts entrepreneurs both here in the United States and
    abroad to want to come build here.
        The days of the government being able to foot the bill with
    its R&D budget are long gone past, but the systems and the
    programs and the structures that we've put in place, were
    predicated on that paradigm. Just going back to 1960, 24
    percent of all the world's R&D expenditure were happening in
    government labs, today, it's less than 1 percent.
        So, if we're going to compete, we have to get smarter about
    how we're leveraging taxpayer dollars and leveraging third
    party capital providers, to build technology companies of
    consequence. Thank you, sir.
        Senator Young. Well, thank you. Your points of emphasis are
    well received, especially in light of the fact that I've been
    working with, I think every member of this committee, on
    something outside of the jurisdiction of this committee, but
    it's to preserve research and development deductions through
    the tax code for our small businesses and frankly, for emerging
    high growth potential businesses pre profitability, to offer
    them an R&D tax credit to incentivize their early-stage R&D and
    then hopefully growth as a company. Mr. Rothzeid, to continue,
    do you have additional thoughts on how the SBIR/STTR program
    can better support American tech innovation and biotech and
    other critical sectors?
        Mr. Rothzeid. Yes. Senator Young, I think what Chair Ernst
    has proposed with creating bridge programs within the SBIR
    program to provide larger pots of funding for technology of
    consequence as signaled by the federal agencies, similar to
    what the Air Force and Space Force have done with STRATFI and
    the Army with Catalyst, these are the types of signals that
    help ensure that the investors can then understand what's
    really important to the federal agencies, provide additional
    capital to those companies so that they can hire the right
    amount of people, invest in cutting edge equipment, and
    continue to scale and grow.
        Because if we're not building companies that want to scale
    and grow, then they won't be able to meet the needs of national
    security and outfitting thousands of soldier sailors, marines,
    airmen, and guardians.
        Senator Young. Thank you for that. I have about a minute
    left and would just like to briefly explore with you, Mr.
    Rothzeid, something related to DODs integration of open topic
    solicitations. My office has been impressed with these and
    their importance. These allow small businesses to propose
    solutions, to more broadly define problems. As we think about
    ways to support small businesses that are working on innovative
    technologies, it seems like expanding what departments and
    agencies can solicit open topic proposals for, might make some
    sense. Can you offer any reflections on this topic?
        Mr. Rothzeid. Senator, I believe that the open topic is the
    reason why this convening is happening today, getting interest
    from venture capitalists like myself and startup founders, like
    Mr. Carr. It's because innovators are building solutions that
    the department hasn't even imagined.
        If we leave it to the whims of the department, they'll come
    up with very bespoke requirements around the things that
    they've already thought of. But that's a very small pool of
    people. Instead, we need to open it up to open topics. What are
    the solutions to the problems I didn't even know I had, and let
    the entrepreneurial class of America go to work.
        Senator Young. In light of the fact that I've already gone
    over my time. Might I work with you on an ongoing basis to
    explore ways to expand the scenarios and situations with which
    open topic proposals can be utilized and related topics?
        Mr. Rothzeid. Senator Young, absolutely.
        Senator Young. All right, great. Thank you, Chair.
        Chair. Thank you. Are there any additional questions? Okay.
    And with no further questions, I want to thank the witnesses
    for being here today. I ask unanimous consent that the record
    of today's hearing remain open for two weeks for members to
    submit questions, revise, and extend their remarks, and submit
    additional information into the record.
        Chair. Without objection, so ordered. And with that, the
    Committee on Small Business and Entrepreneurship stands
    adjourned.
        [Whereupon, at 4:11 p.m., the hearing was adjourned.]
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