1 Federal R&D Programs Reserved for Small Business Ronald S. Cooper, Ph.D Office of Technology U.S. Small Business Administration The SMALL BUSINESS INNOVATION RESEARCH PROGRAM (SBIR) and related programs

2 SBIR Program Program structure Evolution and learning Economic impacts Outreach activities

3 Congress designated 4 major goals of SBIR program:  Stimulate technological innovation  Use small business to meet federal R&D needs  Foster and encourage participation by minorities and disadvantaged persons in technological innovation  Increase private-sector commercialization of innovations derived from federal R&D Small Business Innovation Development Act of 1982

4 SBIR Program National program providing $1.5 billion each year to small businesses for innovation Over 1,500 firms receive over 5,000 awards each year Enables US small businesses to engage in federally- funded R&D—with potential for commercialization Enables/encourages federal agencies to utilize the innovation advantages of small firms Established 1982, recently extended through FY 2008

5 Program Structure  Federal agencies with “extramural” research budgets of over $100 million per year must reserve a percentage for small business through the SBIR program. Amount of R&D budget to be set-aside for SBIR: 1997-present present 2.5% 0.2+% 1.25% 1.5% 2.0% 2.5% Source of Funds for SBIR:

6 U.S. federally-funded R&D U.S. federally-funded R&D Total: $70 billion in 2002 $62B

7 Program Structure  Each participating Federal agency administers its own SBIR program –Solicitations (with technology topic areas) –Proposal review & selection (scientific merit / commercial) –Highly competitive: 16% of proposals accepted - Phase I  SBA has oversight and outreach responsibilities - Policy directive - Monitoring - National conferences - Evaluation - Outreach programs - Reporting to Congress and activities

8 Defense (DOD)600 Health (HHS,NIH)487 Space (NASA)110 Energy (DOE) 95 Science (NSF) 78 Agriculture (USDA) 17 Commerce (DOC) 7 Education (ED) 7 Environment (EPA) 6 Transportation (DOT) 6 SBIR participating agencies TOTAL ~ $1.4 B FY 2002 $ millions  SBA (oversight)

9 SBIR’s 3-Phase Structure PHASE I Ü Feasibility of idea Ü $100,000 (6-12 months) PHASE II Ü Full R&D Ü $750,000 (2 years) Ü Commercialization plan PHASE III Ü Commercialization stage Ü Use of non-SBIR funds (private capital or federal follow-on) Ü Fed: data rights, and noncompete

10 Organized for-profit U.S. business At least 51% owned and controlled by U.S. citizens (individuals) Small business located in the U.S. 500 or fewer employees Principal Investigator’s primary employment must be with the small business Research partners are allowed/encouraged (up to 1/3 of Phase I, up to 1/2 of Phase II) SBIR Eligibility—Who may apply?

11 Key features  Contracts & grants, not loans (high-risk research, no debt burden)  Small business owns intellectual property –Agencies must protect IP for 4 years –Agency retains royalty-free license for government use only of technical data (IP)

12 SBIR Program Program structure Evolution and learning Economic impacts Outreach activities

13 National Policy Context  1950s, 60s -- Federal role was to support basic research in Federal labs and large businesses  1970s, 80s -- Policy shift towards: - commercialization of federal R&D - government-industry partnerships - greater role for small business “Stevenson-Wydler Act” of 1980 “University and Small Business Patent Procedure Act” of 1980 (Bayh-Dole Act) “Small Business Innovation Development Act” of 1982 established the SBIR program

14 SBIR/STTR: Historical Relationships Federal Government Small Businesses

15 SBIR/STTR: Historical Relationships Small Businesses State Government  Quasi-Government Corporations  Economic Development Entities  Technology Centers Federal Government

16 SBIR/STTR: Historical Relationships Small Businesses State Government  Quasi-Government Corporations  Economic Development Entities  Technology Centers Federal Government Academia  University Research Parks  Faculty & Graduate Students  Technology Incubators  Research Foundations

17 Small Business Technology Transfer Program (STTR) Promoting Small Business-University Collaboration Set-aside program to facilitate cooperative R&D between small businesses and U.S. research institutions Established 1992, recently extended through 2009 Similar structure to SBIR, administered by SBIR offices Funding: → –Set-aside = 0.3 % of extramural R&D → $200 million –Agencies with extramural R&D > $1B must participate FY2002: 356 Phase I awards 114 Phase II awards

18 Defense (DOD) SBIR/STTR 25.4 Health (HHS)SBIR/STTR 16.8 Space (NASA)SBIR/STTR 4.2 Energy (DOE) SBIR/STTR 3.5 Science (NSF)SBIR/STTR 2.8 Agriculture (USDA) SBIR.6 Commerce (DOC) SBIR.3 Education (ED)SBIR.3 Environment (EPA) SBIR.2 Transportation (DOT)SBIR.1 SBIR/STTR participating agencies >$1 B/yr Extramural Budget ($B)

19 STTR - SBIR Differences STTR requires research institution partner University or college / non-profit research org. / FFRDC Research partner share: min.= 30% max.= 60% ( SBIR: permits/encourages partners: Phase I: max. 33% Phase II: max. 50%) Award always goes to small business Requires written agreement allocating IPRs Principal Investigator’s primary employment can be with research institution or small business SBIR: Primary (>50%) employment must be with small business

20 SBIR Program Program structure Evolution and learning Economic impacts Outreach activities

21 SBIR program impacts  Is often only source of funding available  Enables new startups, spin-offs  Induces entrepreneurial activity (“demonstration effect”)  Enables small firms to develop innovative capacity  Complements private ventures (reduces risk)  “Success rate”: 39% of projects had sales attributable to SBIR (55% had sales or additional investment)  Addresses gap in innovation financing

22 SBIR addresses innovation finance gap Dimensions of the gap SBIR program 1. Information  Certification effect, outreach 2. Short timeframe  Awards/grants (no payback)

23Source: MoneyTree Survey—PricewaterhouseCoopers, Thompson Venture Economics, NVCA. Expansion Early Stage Late Stage Start Up US Venture Capital Investments by Stage, 2002

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25 SBIR addresses innovation finance gap Dimensions of the Gap SBIR program 1. Information  Certification effect, outreach 2. Short timeframe  Awards/grants--no payback 3. Size of financing  Small grants (< $1m)

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27 SBIR addresses innovation finance gap Dimensions of the Gap SBIR program 4. Few technology areas  Wide range of technologies 5. Geographic specialization  Broad geographic coverage 1. Information  Certification effect, outreach 2. Short Timeframe  Awards/grants--no payback 3. Size of financing  Small grants (< $1m)

28 Funding Sources for Early-stage Technology Development in U.S. Lower estimate: $5.4 Bil. Upper estimate: $35.6 Bil. Note: Proportional distribution is similar regardless of restrictive or inclusive definitions. [Source: Philip Auerswald, Lewis Branscomb, Between Invention and Innovation]

29 Integrating commercialization reporting into on-line application National Research Council (NRC) 3-year review Improving SBIR Program evaluation

30 SBIR Program Program structure Evolution and learning Economic impacts Outreach activities

31 Outreach & assistance initiatives: “63% of SBIR projects need assistance with commercialization activities” SBIR & STTR outreach to low-income communities, women-owned businesses, and socially/ economically disadvantaged Federal & State Technology Partnership (FAST) Rural Outreach Program Coordinate with other programs (SBIC, VC/AC networks)

32 Federal and State Technology Partnership (FAST) Program Purpose: to provide support to state-level organizations that help small businesses in, or interested in, the SBIR program –Mentoring networks: Business advice & counseling Matching grants to state-level organizations –incentive for states with lower levels of SBIR participation –administered by SBA Target: All states eligible, one grant per state Funding = FY 2001: $3 million, 30 grants FY 2002: $3 million, 27 grants FY 2004: $2 million, 10 grants (Grant size: $100K)

33 Rural Outreach Program Purpose: to geographically expand competition for SBIR awards by supporting outreach efforts in states with low levels of program participation. Target: 25 rural states Matching 5-year grants: one per state, 1:2 (state:federal) Funding level: FY 2001: $1.5 million, 25 awards FY 2002: $500K, 10 awards FY 2004: $250K 5 awards Grant sizes: $40K, $52K, $80K

34 SBIR & STTR Programs SBIR & STTR Programs Office of Technology U.S. Small Business Administration For more information Contact individual agency websites Cross-agency websites: Ronald S. Cooper (202)