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Dr. Ronald Cooper. Small Business Administration USA. Small Business Innovation Research Program (SBIR) Small Business Technology Transfer Program (STTR) Member, National Academy of Sciences ’ , U.S. Innovation Policy Committee Instructor, American University, USA

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dr ronald cooper

Dr. Ronald Cooper

Small Business Administration

USA

slide2

Small Business Innovation Research Program (SBIR)

  • Small Business Technology Transfer Program (STTR)
  • Member, National Academy of Sciences’, U.S. Innovation Policy Committee
  • Instructor, American University, USA
  • Science, Technology, and Economic Policy Board, National Academy of Sciences
  • Publications: Technological Innovation, Economic Policy, and Economic Development
financing small firm innovation in the united states
Financing Small Firm Innovation in the United States

The Small Business Innovation

Research (SBIR) program

and related programs

Ronald S. Cooper, Ph.DOffice of TechnologyU.S. Small Business Administration

public innovation programs u s
Public innovation programs—U.S.
  • “U.S. experience” -- national, state, local -- models, practices, lessons
  • Targeting small firms and individual entrepreneurs -- ¼th R&D $, 55% innovations -- incentive: possibility of high returns -- risk is manageable, failure is an option
national policy shift
National policy shift
  • 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
economic context
Economic context
  • Concern over competitiveness of US industry—productivity
  • Disconnect between invention and innovation
  • only 5% inventions in federal labs licensed
  • VC industry
  • no good “angel” investor networks
  • funding gap “valley of death” for early- stage innovation
sbir addresses innovation finance gap
SBIR addresses innovation finance gap

Dimensions of the GapPublic program

1. Information Certification effect, outreach

2. Short Timeframe  Awards/grants

us venture capital investments by stage 2002
US Venture Capital Investmentsby Stage, 2002

Expansion

Late Stage

Early Stage

Start Up

Source: MoneyTree Survey—PricewaterhouseCoopers, Thompson Venture Economics, NVCA.

sbir addresses innovation finance gap10
SBIR addresses innovation finance gap

Dimensions of the GapPublic program

1. Information Certification effect, outreach

2. Short Timeframe  Awards/grants

3. Size of financing  Small grants (< $1m)

sbir addresses innovation finance gap12
SBIR addresses innovation finance gap

Dimensions of the GapPublic program

1. Information Certification effect, outreach

2. Short Timeframe  Awards/grants

3. Size of financing  Small grants (< $1m)

4. Few (fad) technologies  Wide range of technologies

5. Geographic specialization  Broad geographic coverage

small business innovation research sbir program
Small Business Innovation Research (SBIR) Program

Objectives of SBIR program:

  • Stimulate technological innovation
  • Use small business to meet federal R&D needs
  • Increase private-sector commercialization of innovations derived from federal R&D
sbir program today
SBIR program today
  • National program providing $2 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
sbir s 3 phase structure
SBIR’s 3-Phase Structure

PHASE I

  • Feasibility of idea
  • $100,000 (1 year)

PHASE II

  • Full R&D, prototype
  • $750,000 (2 years)
  • Commercialization plan

“PHASE III”

  • Commercialization stage
  • Use of non-SBIR funds (private capital or federal follow-on)
sbir eligibility requirements
SBIR eligibility requirements
  • Small business located in the U.S.
  • 500 or fewer employees
  • Organized for-profit U.S. business
  • At least 51% ownedand controlled by U.S. citizens (individuals)
  • Principal Investigator’s primary employmentmust be with the small business
  • Research partners are allowed/encouraged (up to 1/3 of Phase I, up to 1/2 of Phase II)
source of funds for sbir
Source of funds for SBIR:
  • 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:

1982-861987-921993-941995-961997-present

0.2+% 1.25% 1.5% 2.0% 2.5%

program structure
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 ½ of Phase I projects win Phase IIs
  • SBA has oversight and outreach responsibilities - Policy directive - Monitoring - National conferences - Evaluation - Outreach programs - Reporting to Congress and activities
sbir participating agencies

TOTAL ~ $2 B

FY 2004

SBIR participating agencies

(FY2002)$ millions

  • SBA (oversight)
  • 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
project selection process
Project selection process

Integrity of selection process—key to program success

  • Independent review panel of experts (vol.)
  • 3-5 proposals e-mailed to each reviewer
  • Reviewers grade proposals
      • scientific/technical merit
      • commercialization potential
  • Review panel convenes, ranks proposals
      • (1) Must fund, and (2) award if funds available
  • Agency official makes awards [choice]

Balance between very new ideas and commercial viability

key features
Key features
  • Grants & contracts, not loans
    • truly early-stage, no pay-back, nodebtburden
    • program continues to fund high-risk research
  • Small business owns intellectual property
    • government must protect IP for 4 years
    • agency retains royalty-free license forgovernment use only of technical data (IP)
sbir program evolution

Federal

Government

Small

Businesses

SBIR program evolution

1982

sbir program evolution24

Federal

Government

State

Government

 Quasi-Government Corporations

 Economic Development Entities

 Technology Centers

Small

Businesses

SBIR program evolution

1982

state regional assistance programs
State/regional assistance programs
  • Non-profit org
  • Matching funds established with state govt funding (1:2)
  • Firms required to find commercial partners
  • Firms receive funds in installments only when they pass business milestones:
    • Business plan, management structure, marketing strategy, secure private risk capital
  • Assistance also includes: matching with VCs, angel network, mentor networks, incubators, universities, export assistance
  • Conditional payback:
    • 5% of sales, if successful - 2-3 times original investment
    • self-financing after +- 5 years
modified 3 phase structure
Modified 3-phase structure

PHASE I

  • Feasibility of idea
  • $100,000 (1 year)

PHASE II

  • Full R&D, prototype
  • $750,000 (2 years)
  • Commercialization plan

“PHASE IIb” (NSF)

≈ $400,000 initially

→ $350,000 only with matching invest.

$700,000 cash

PHASE III

  • Commercialization stage
  • Use of non-SBIR funds (private capital or federal follow-on)

$1,450,000

outreach assistance initiatives
Outreach & assistance initiatives
  • Outreach to bring in new firms. Is needed:
    • to maintain quality of proposals, cutting-edge research
    • to improve geographic dispersion (political support)
  • Federal support for state-level assistance programs that support innovation success
    • Federal & State Technology Partnership (FAST) program
    • Rural Outreach Program
    • “63% of SBIR projects need assistance with commercialization activities”
federal and state technology partnership fast program
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)
rural outreach program
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
sbir program evolution30

Federal

Government

State

Government

 Quasi-Government Corporations

 Economic Development Entities

 Technology Centers

Academia

Small

Businesses

 University Research Parks

 Faculty & Graduate Students

 Technology Incubators

 Research Foundations

SBIR program evolution

1982

small business technology transfer program sttr promoting small business university collaboration
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
sttr sbir differences
STTR - SBIR Differences
  • STTR requires research institution partner

University or college / non-profit research org. / FFRDC

      • Research partner share: min.= 30% max.= 60%
  • 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 program impacts
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)
  • Market value of companies started with SBIR projects (?)
lessons learned
Lessons learned
  • There is an effective role for government in funding early-stage small-firm innovation; grant and payback
  • One program cannot do everything: different programs for different stages
  • Eligibility: restrict to for-profit small businesses
  • Proposal selection: integrity, quality, balance (between very new ideas and commercial feasibility)
  • Small firms must own the IP (incentive), public programs must protect it
  • Need to design so that it compliments and coordinates with private risk capital (angel, VC, etc.)
lessons learned cont d
Lessons learned (cont’d)
  • Must have university-specific part of program, or separate (linked) program (like STTR) to deal with IP and promote spin-offs
  • Must coordinate with regional/local business assistance programs
  • Outreach is needed to maintain program at cutting-edge (new blood)
  • Outreach (not quotas) to achieve geographic dispersion--helps create political support
  • Program flexibility where possible
sbir sttr programs office of technology u s small business administration
SBIR & STTR ProgramsOffice of Technology U.S. Small Business Administration

For more information

  • Contact individual agency websites
  • Cross-agency websites:

www.sba.gov/sbirwww.sbirworld.com

Ronald S. Cooper

ronald.cooper@sba.gov

(202) 205-6455

dr ronald cooper37

Dr. Ronald Cooper

Small Business Administration

USA