Federal Innovation Program Clears Key Capitol Hill Hurdles
Legislation reauthorizing and updating the Small Business Innovation Research program and Small Business Technology Transfer programs has now cleared the House of Representatives and the Senate, but considerable differences between the House and Senate versions will require significant reconciliation efforts in conference committee. The outcome will be critical to the performance of these two key innovation programs.
SBIR is the single largest federal program dedicated to support of our nation’s innovative small businesses, making over $2.2 billion in annual competitive grants to small businesses engaged in the innovative research and development. The smaller Small Business Technology Transfer (abbreviated STTR) program funds R&D partnerships between small businesses and universities.
The House version of the bill modernizes SBIR by increasing Phase I award sizes to $250,000 from $100,000 and Phase II awards to $2 million from $750,000. The Senate version makes more modest increases, to $150,000 for Phase I and $1 million for Phase II. The grant sizes are important given the dearth of seed-stage and early-stage risk capital from angel investors and venture capitalists amid the economic downturn.
Both bills, however, allow venture capital-backed small businesses to once again apply for awards, repealing a restriction on these businesses that had been in place since 2003. A comprehensive study of the SBIR program by the National Academies found that venture capital-backed small businesses were often the most innovative and successful and that shutting VC-backed startups out of SBIR funding was ill-advised.
The two bills open the funding to venture capital-backed small businesses in different ways and to different extents. The House version allows SBIR grants to small companies so long as no single VC firm has a majority stake in the company. The Senate version deals with the issue differently, opening only a limited number of awards to small businesses with venture capital funding, specifically directing the National Institutes of Health to award no more than 18 percent of its SBIR awards to small companies majority-owned by VC firms and directing the other agencies to award no more than 8 percent of theirs to such companies.
Both bills were passed in an overwhelmingly bipartisan fashion, so crafting compromise legislation in conference committee should not threaten final passage of the legislation by the full Congress. President Obama is expected to sign the legislation since his administration is keen to implement more coordinated innovation policy involving not just the SBIR and STTR programs but also the array of other innovation programs. The reason: Innovative small businesses are one of the primary sources of economic growth, jobs, and the development of the technologies that will help us solve pressing national challenges such as health IT, clean energy, advanced manufacturing, and high-speed transit. Stronger and more sustained support for innovative small businesses is a smart choice for America as we deal with the recession and a more competitive global economy.
For more on SBIR/STTR and its crucial role in the national innovation infrastructure, see the features on Manufacturing Innovation and on a National Innovation Framework. Also, check out the Science Progress series on Innovation Clusters for an in-depth look at how they can play a central role in national innovation policy.
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