[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



[111th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:48595.wais]



 
                       FULL COMMITTEE HEARING ON
                     THE IMPORTANCE OF TECHNOLOGY
                        IN AN ECONOMIC RECOVERY

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             APRIL 22, 2009

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-016


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                        PARKER GRIFFITH, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)

  
?

                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama

                                 (iii)

  
?

               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
PARKER GRIFFITH, Alabama             Ranking
MELISSA BEAN, Illinois               STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             GLENN THOMPSON, Pennsylvania
BOBBY BRIGHT, Alabama                MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                  HEATH SHULER, Pennsylvania, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Brown Jr., Mr. Edsel M. , Esq, Assistant Administrator, Office Of 
  Technology, U.S. Small Business Administration.................     3
Caccuitto, Mr. Michael, Assistant Director, Office of Small 
  Business Programs, SBIR/STTR Program Administrator, U.S. 
  Department of Defense..........................................     5
Goodnight, MS. Jo Anne, NIH SBIR/STTR Program Coordinator, Office 
  of Extramural Research, National Institutes of Health, U.S. 
  Department of Health and Human Services........................     6
James, Mr. Larry, Acting SBIR/STTR Program Manager, Office of 
  Science, U.S. Department of Energy.............................     8
Narayanan, Mr. Kesh S.,Division Director, Industrial Innovations 
  and Partnerships (IIP), Directorate For Engineering, National 
  Science Foundation.............................................     9
Green, Mr. Joshua, General Partner, MDV-Mohr Davidow Ventures, 
  Menlo Park, CA, On Behalf of The National Venture Capital 
  Association....................................................    24
King, Ms. Rachel, Chief Executive Officer, Glycomimetics, Inc., 
  On Behalf of Biotechnology Industry Organization...............    26
Stocker, Mr. John, Senior Vice President, Federal Solutions, 
  Lynntech, Inc., College Station, TX............................    28
Rosellini, Mr. Will, Chief Executive Officer, Microtransponder 
  Inc., Dallas, Texas, On Behalf of Advanced Medical Technology 
  Association....................................................    30

                                  (v)

  
?

                                APPENDIX


                                     Prepared Statements:
Velazquez, Hon. Nydia M..........................................    39
Graves, Hon. Sam.................................................    41
Brown Jr., Mr. Edsel M. , Esq, Assistant Administrator, Office Of 
  Technology, U.S. Small Business Administration.................    43
Caccuitto, Mr. Michael, Assistant Director, Office of Small 
  Business Programs, SBIR/STTR Program Administrator, U.S. 
  Department of Defense..........................................    47
Goodnight, Ms. Jo Anne, NIH SBIR/STTR Program Coordinator, Office 
  of Extramural Research, National Institutes of Health, U.S. 
  Department of Health and Human Services........................    62
James, Mr. Larry, Acting SBIR/STTR Program Manager, Office of 
  Science, U.S. Department of Energy.............................    70
Narayanan, Mr. Kesh S.,Division Director, Industrial Innovations 
  and Partnerships (IIP), Directorate For Engineering, National 
  Science Foundation.............................................    81
Green, Mr. Joshua, General Partner, MDV-Mohr Davidow Ventures, 
  Menlo Park, CA, On Behalf of The National Venture Capital 
  Association....................................................    93
King, Ms. Rachel, Chief Executive Officer, Glycomimetics, Inc., 
  On Behalf of Biotechnology Industry Organization...............   104
Stocker, Mr. John, Senior Vice President, Federal Solutions, 
  Lynntech, Inc., College Station, TX............................   109
Rosellini, Mr. Will, Chief Executive Officer, Microtransponder 
  Inc., Dallas, Texas, On Behalf of Advanced Medical Technology 
  Association....................................................   115

                                  (vi)

  


                       FULL COMMITTEE HEARING ON
                      THE IMPORTANCE OF TECHNOLOGY
                        IN AN ECONOMIC RECOVERY

                              ----------                              


                       Wednesday, April 22, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:09 p.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chair of the Committee] Presiding.
    Present: Representatives Velazquez, Moore, Dahlkemper, 
Ellsworth, Sestak, Bright, Graves, Luetkemeyer, and Thompson.
    Chairwoman Velazquez. I call this hearing of the Small 
Business Committee to order.
    As Americans, we take great pride in our ability to 
innovate. Let's not forget, it was our engineers who created 
the Model T; our scientists who sent the first man to the moon; 
and our tech entrepreneurs who created the world's favorite new 
distraction. Yes, we can all thank Mark Zuckerberg for 
Facebook.com.
    From cyberspace to the health care sector, this country has 
an impressive track record of innovation. While the economy may 
be suffering, that pioneering spirit is still alive and well. 
This is largely thanks to our nation's entrepreneurs. If we 
have learned anything from the economic crisis, it is that the 
policies of the past do not work.
    We need to change the way that America does business, 
beginning with an increased focus on small firms. Those are the 
companies bringing fresh ideas to the table and new products to 
market. In fact, entrepreneurs produce 13 times more patents 
per employee than big businesses. Much of that innovation is 
powered by research and development grants, the largest of 
which is the Small Business Innovation Research, or SBIR, 
program.
    In today's hearing, we are going to take a look at that 
initiative. We will examine its role in spurring innovation and 
discuss obstacles preventing SBIR from reaching its full 
potential.
    Since first established in 1982, SBIR has helped launch 
tens of thousands of successful research projects. Every year, 
the program makes a $2.2 billion investment in small firms, an 
infusion that gets 1,500 new companies off the ground. It also 
serves as a driving force behind our most inventive businesses. 
As a result of SBIR, we have seen breakthroughs in everything 
from antivirus software to wireless technology for BlackBerrys. 
But the program doesn't just spark new ideas; it helps generate 
jobs, too.
    High growth start-ups, the kind that receive SBIR grants, 
are prolific job creators. In fact, the employment growth rate 
for these businesses is nearly four times of that of bigger 
firms. Meanwhile, 40 percent of all high-tech workers, from 
engineers to computer programmers, are employed by these kinds 
of companies.
    The only thing more impressive than the jobs created 
through SBIR are the products that come out of it. Year after 
year, SBIR-backed businesses account for a quarter of U.S. R&D 
winners. And yet it is clear that the initiative has not 
reached its full potential. The majority of products developed 
through the program never make it to market. There are a number 
of reasons for this, not least of all being a lack of capital.
    Innovation is a resource-intensive process. It takes time 
and money to carry a new product from the laboratory to the 
marketplace. As a result, entrepreneurs often struggle to 
bridge the gap. SBIR-backed firms should have access to all of 
the tools they need, including venture capital. At a time when 
capital is increasingly hard to come by, it doesn't make sense 
to limit funding options for small businesses. It should be up 
to entrepreneurs themselves, not Washington bureaucrats, to 
decide how these firms are financed.
    Last Congress, the House passed a bill to modernize and 
extend SBIR. Unfortunately, that legislation never made it out 
of the Senate. With people losing their jobs and businesses 
closing their doors, programs like SBIR need to be running at 
full capacity, especially considering the role that 
entrepreneurs play in economic recovery. These are the 
businesses willing to take risks and help rebuild our economy. 
With the necessary tools, they can lay the groundwork for a 
better, more innovative way of doing business.
    I am pleased our witnesses can join us today, and I thank 
them in advance for their testimony.
    With that, I yield to ranking member graves for his opening 
statement.
    [The statement of Chairwoman Velazquez is included in the 
appendix at page 39.]
    Mr. Graves. Thank you, Madam Chair.
    I appreciate everyone taking the time to be with us here 
today about the Small Business Innovation Research, or SBIR, 
program. We have quite a few witnesses here that we will be 
hearing from, and I am going to give some brief remarks right 
now.
    Today's hearing represents the beginning of the committee's 
work to review and reauthorization the SBIR program. Today we 
will focus on how the SBIR reauthorization can be better 
structured and its role as a vehicle of early stage development 
of innovative technologies. This program is an example of a 
highly successful Federal initiative designed to encourage 
economic growth and innovation within the small business 
community. Government assistance and funding can be critical to 
the start-up and development stages of small businesses. Not 
only does it spur growth in individual companies, the program 
stresses the importance of expanding and diversifying research 
opportunities to small businesses.
    Created in 1982, the SBIR program offers competition-based 
awards to stimulate technological innovation among firms while 
providing government agencies new, cost-effective technical and 
scientific solutions to meet their diverse needs.
    The development of this program is not only critical to the 
unique needs of each of the participating Federal agencies but 
also to our national economy. Small businesses invigorate the 
U.S. economy by introducing new products and cheaper ways of 
doing business, sometimes with substantial economic benefits. 
They play a key role in introducing products to the markets, 
often responding quickly to new market opportunities. Some of 
the greatest technological innovations came about from small 
business owners tinkering in their labs and workshops.
    The SBIR program provides those innovators with an 
opportunity to grow their ideas into practice, provide jobs, 
and improve our economy.
    I remain hopeful that legislation drafted by the committee 
will maintain the integrity of the program while not limiting 
participation. We must work to find an appropriate solution 
that funds the best science while wisely investing taxpayer 
dollars.
    The SBIR program's track record speaks for itself. I am 
eager to hear the testimony this afternoon.
    I look forward to working with you, Madam Chairwoman.
    Chairwoman Velazquez. Thank you.
    I welcome the witnesses of our first panel.
    Chairwoman Velazquez. Our first witness is Mr. Edsel Brown.
    Mr. Brown is the assistant administrator for the Office of 
Technology in the Small Business Administration. The Office of 
Technology promotes the Federal Government's high technology 
programs designed to improve the competitive capability of 
small research and development businesses.
    Welcome, sir. You have 5 minutes.

             STATEMENT OF EDSEL M. BROWN, JR., ESQ.

    Mr. Brown. Madam Chairwoman, Ranking Member Graves, and 
distinguished members of the committee, thank you for inviting 
me here today to discuss the Small Business Innovation Research 
program. I am Edsel Brown, assistant director, Office of 
Technology of the Small Business Administration. My office has 
responsibility for innovation policy and programs at SBA and 
for oversight of the SBIR program.
    The SBIR program, established in 1982, was designed to 
strengthen the role of innovative small business concerns and 
federally funded research and development, and to utilize 
Federal research and development as a base for technological 
innovation to meet agency needs and to contribute to the growth 
and strength of the nation's economy.
    This competitive award program attempts to promote 
innovation and commercialization from small companies by 
restricting a portion of 11 Federal agencies' external R&D 
spending to small business.
    A National Academy of Science review of SBIR concluded that 
the program is sound in concept and effective in practice, 
meets its major congressional objectives, and is a driver of 
innovation and commercialization for small business. Since its 
inception, the program has awarded more than $24 billion to 
small firms.
    The program is structured in three phases. Phase I awards 
provide up to $100,000 to evaluate the feasibility and the 
scientific and technical merit of an idea. Phase II awards are 
funded up to $750,000 for 2 years for the further development 
of ideas initiated in Phase I. In Phase III, the awardee firm 
must either secure private sector investment to bring the 
innovation to market or obtain follow-on contracts with Federal 
agencies to meet specific agency technology needs.
    SBA and the SBIR participating agencies recognize the 
importance of assessing the SBIR programs' outcomes and 
achievements. The recent National Academy of Science study 
provided a first step toward assessing the program. The recent 
National Academy of Science study found that SBIR is increasing 
innovation, encouraging participation by small companies in 
Federal R&D, providing support for small firms own by 
minorities and women, and resolving research questions for 
mission agencies in a cost-effective manner.
    The study's findings highlight the SBIR program's 
contribution to job growth. SBIR awardees generate 
approximately 26 more jobs after SBIR funding.
    Commercialization: Nearly 50 percent of SBIR Phase II 
awardees bring their innovations to the marketplace.
    And small business reach: From 1992 to 2005, nearly 15,000 
SBIR awards were made to small business.
    An example of a success story is ArmorWorks, LLC. 
ArmorWorks has developed a high-performance, low-cost composite 
armor system for the U.S. Marine Corps new expeditionary 
fighting vehicle. ArmorWorks developed their composite armor 
system in response to a Navy requirement for a lightweight 
armor component that could be affordably produced and 
assembled.
    Since 2004, ArmorWorks has won contracts from the Army and 
Marine Corps to provide armor technology. The technology is 
presently being used to provide extra armor for protective 
vests worn by marines and soldiers serving in Iraq and 
Afghanistan.
    Again, this story is just one of many. The story clearly 
illustrates the SBIR program at its best, assisting small 
companies to leverage their resources and providing the country 
with cutting edge technology and innovation.
    Another measure of success by the SBIR program is that it 
is being replicated elsewhere. Countries from across Europe, 
Asia and Latin America are establishing innovation programs 
based on the successful SBIR model.
    Thank you for the opportunity to appear before you today. I 
will be happy to answer any questions you have.
    [The statement of Mr. Brown is included in the appendix at 
page 43.]
    Chairwoman Velazquez. Thank you, Mr. Brown.
    Our next witness is Mr. Michael Caccuitto. Mr. Caccuitto is 
the assistant director of the Office of Small Business 
Programs, SBIR and STTR Program Administration for the 
Department of Defense. The Office of Small Business Programs is 
responsible for developing policies to guide the Department of 
Defense efforts to meet small business procurement goals and 
objectives.
    Welcome.

                 STATEMENT OF MICHAEL CACCUITTO

    Mr. Caccuitto. Thank you, Chairwoman Velazquez, Ranking 
Member Graves and members of the Small Business Committee.
    Thank you for this opportunity to testify on the Small 
Business Innovation Research Program. I welcome the opportunity 
to provide a perspective on how the program is implemented and 
managed within the Department of Defense.
    Consistent with program guidelines and mandates, the 
program is used principally as a tool for the Department of 
Defense to seed innovation in our industrial base and, in so 
doing, develop leading-edge technologies with the potential to 
enable acquisition of lower cost or new war fighter 
capabilities through the marketplace. Now more than ever, we 
need to leverage the responsiveness, efficiency, and capacity 
to innovate of our nation's small businesses.
    By way of our brief overview of the DOD SBIR program, it is 
comprised of 12 military departments and defense agencies with 
oversight and central administration provided by my office, the 
Office of Small Business Programs DOD. This model of 
centralized administration and decentralized management and 
execution allows each participating component to tailor the 
program to meet their unique and diverse mission needs.
    The largest three participants in the program are the Air 
Force, Navy and Army, which together constitute about three 
quarters of our overall DOD budget.
    The DOD program is the largest among the Federal agencies. 
The budget for fiscal year 2008 was nearly $1.2 billion. This 
funding supported over 1,800 new Phase I contracts and over 
1,000 new Phase II contracts.
    Interest in the program is intense among small businesses. 
For the past 7 years, the department has received over 12,000 
proposals per year. The competition remains very strong, with 
only the very best proposals getting funded. Historically, 
about one in six proposals in Phase I get funded, and about 50 
percent of those move on to Phase II.
    The defining characteristics of the applicant firms have 
remained fairly consistent over time. Contracts are awarded in 
every State to firms of all qualifying sizes, and to a great 
extent to firms that are new to the program in DOD. 
Additionally, about 30 percent are awarded to small businesses 
owned or controlled by socially or economically disadvantaged 
individuals, women-owned small businesses, veteran-owned small 
businesses, and small business concerns located in hub zones.
    While it is relatively easy to identify specific SBIR 
funded firms, or particular technologies that have contributed 
to our missions, it is difficult to accurately quantify the 
broader impact of the SBIR program on the economy.
    While in the course of administering the program the 
department tracks the number of employees of participating 
firms, we do not collect data specifically measuring job 
creation. However, we can estimate job creation or sustainment 
by calculating the employment associated with both the SBIR 
budget expenditure and reported commercialization, or market or 
Phase III activity derived from extending or logically 
concluding SBIR funded work. DOD has collected this type of 
data for the past 9 years.
    Using a conservative conversion factor, the DOD SBIR 
funding supported the creation or sustainment of between 9,000 
and 16,000 jobs per year between fiscal years 2001 and 2008. 
While reported commercialization in the form of follow-on sales 
or investment supported the creation or sustainment of between 
10,000 and 37,000 jobs per year.
    This estimate is believed to be conservative as many firms 
outgrow the program, are acquired by larger firms, or otherwise 
do not continue to participate, and thus report to us. 
Additionally, they do not account for spillover effects of 
knowledge generated through the program that create or effect 
other market activity.
    On the other hand, this process of jobs creation 
sustainment has opportunity costs associated with it and 
uncertainties also, and should be therefore considered with 
some degree of caution and care.
    I thank you for the opportunity to testify on the program 
today, its size, its scope, and impact to DOD. I hope my 
testimony provides you with an understanding of how the program 
works. I would be happy to answer any questions you have.
    [The statement of Mr. Caccuitto is included in the appendix 
at page 47.]
    Chairwoman Velazquez. Thank you.
    Our next witness is Ms. Jo Anne Goodnight. She is the NIH 
SBIR/STTR program coordinator to the Office of Extramural 
Research in the National Institutes of Health. The Office of 
Extramural Research administers grants accounting for 84 
percent of the NIH's $29 billion budget, including grants to 
small research companies.
    Welcome.

                 STATEMENT OF JO ANNE GOODNIGHT

    Ms. Goodnight. Thank you.
    Good afternoon, Chairwoman Velazquez, Ranking Member Graves 
and committee members. Thank you for the opportunity to discuss 
the NIH SBIR program and the importance of technology in an 
economic recovery.
    NIH is one of the largest funders of the SBIR program, and 
the largest supporter of biomedical research that focuses on 
extending health life and reducing the burdens of illness and 
disabilities.
    The SBIR program is poised to fund early stage high-risk 
and high-quality research from which important medical advances 
can be developed. This fiscal year, the total SBIR and STTR 
set-aside is about $672 million.
    NIH SBIR projects are stories of igniting imaginations and 
spurring new discoveries that can make a difference in people's 
lives. For example, several companies in New York are focused 
on detecting, diagnosing, or treating Lyme disease.
    Altea Therapeutics, a Georgia company, developed a needle-
less infusion patch called the PassPort System for painless and 
controlled delivery of drugs such as insulin, or vaccines, such 
as hepatitis B antigen, through the skin.
    Three Rivers Holdings, an Arizona company, focused on 
assistive technology and developed better wheels for 
wheelchairs. The SmartWheel optimizes wheelchair use to root 
out causes of chronic pain on the shoulder, hand or wrist.
    Lickenbrock Technologies, a Missouri company, developed a 
3-D imager that helps doctors monitor and treat diabetics for 
eye diseases.
    And a Florida firm, Biopsy Sciences, developed the 
HydroMARK, a novel site marker used in breast biopsy ultrasound 
procedures.
    Stories such as these come from companies all over the 
United States and underscore the importance of SBIR to our 
mission. In support of the goal to increase commercialization 
of federally supported R&D, NIH offers programs such as the 
Fast-Track and Competing Renewal award to help awardees 
negotiate the agonizing period between discovery and 
commercialization, the so-called valley of death.
    In addition, NIH offers commercialization assistance 
programs and facilitates matchmaking through the NIH pipelined 
partnerships.
    NIH is pleased that a recent study conducted by the 
National Research Council found that 40 percent of NIH SBIR-
funded projects are commercialized. Further, using a dynamic 
monitoring system to track continued achievements over time, we 
have found that about 50 percent of our awardees have achieved 
sales. Other factors, such as FDA approvals, strategic 
partnerships and investments, also demonstrate program success.
    Economic impacts can also result from an SBIR award. For 
example, job growth, the theme of today's hearing, the study 
found that small businesses serve as potential sources of 
economic vitality and can be an important source of new 
employment as a result of NIH's SBIR funding. Companies hired 
an average of 2.7 full-time employees and retained 2.2 FTEs 
that otherwise would not have been retained.
    NIH attributes the success and effectiveness of its program 
to several factors. The most significant of these is 
flexibility in our administration of a program to address the 
changing nature of biomedical research and accommodate the 
needs of multiple industries and diverse product outcomes.
    Examples include the ability of companies to propose their 
own project ideas, an opportunity to resubmit an unfunded 
application, and the ability to exceed award guidelines in 
justified cases. Simply stated, one size does not fit all. 
Flexibility is critical at a time when science is changing 
rapidly, becoming more complex and ever-more expensive.
    Despite program flexibility and enhancements, we have 
observed some troubling trends. Specifically, the number of 
SBIR applications declined from fiscal years 2004 through 2008 
by nearly 40 percent. Though the reasons are not fully 
understood, this disconcerting trend may be related to certain 
disincentives that are either rendering worthy companies 
ineligible or driving them away for other reasons.
    For some, the award amounts or current phase structure are 
not sufficient incentives for applying. For others, the process 
is too competitive. Others may have lost eligibility or be 
confused about eligibility criteria.
    New companies may find the process daunting or are unsure 
of how to match their skills with our research areas. 
Appropriate incentives can strengthen the role of small 
businesses in stimulating technological innovation during the 
economic recovery period.
    In conclusion, I want to reemphasize the NIH commitment to 
supporting small businesses and maintaining the integrity of 
the SBIR program. We look to small businesses to stimulate 
technological innovation, help us face new challenges, and 
produce benefits for the public.
    We look forward to working with Congress on ways to 
reinvigorate the program, incentivize America's small 
businesses to participate, and create an environment enabling 
commercialization of health-related products and services that 
will sustain our national economy.
    This concludes my statement. I will be pleased to answer 
any questions you may have.
    [The statement of Ms. Goodnight is included in the appendix 
at page 62.]
    Chairwoman Velazquez. Thank you, Ms. Goodnight.
    Our next witness is Mr. Larry James. Mr. James is the 
acting SBIR/STTR program manager in the Department of Energy's 
Office of Science. The Office of Science has managed the SBIR 
program for the Department of Energy since the program was 
founded in 1982.
    Welcome.

                    STATEMENT OF LARRY JAMES

    Mr. James. Thank you.
    Chairwoman Velazquez, Ranking Member Graves and other 
members of the committee, thank you for inviting me to speak 
today about the Small Business Innovation Research Program at 
the Department of Energy.
    The Office of Science manages the SBIR program for the 
Department and has done so since the program was formed in 
1982. The SBIR program is regarded within the Department of 
Energy like any other program, namely, as a vehicle for which 
the Department accomplishes its R&D objectives. The Office of 
Science's long history of using merit-based review of grant 
applications and its thorough understanding of scientific and 
technical research are key elements in the Department's 
program.
    Cooperation throughout the Department in administering the 
SBIR program is a key to the success of the program. The 
Department issues an annual combined solicitation for the SBIR 
and STTR programs. Proposals are awarded through a rigorous 
merit-based review process.
    Many of the SBIR awardees have excellent skills in science 
and engineering research but lack experience in product 
development, financing business growth, raising venture 
capital, and marketing. Because commercialization of 
innovations derived from Federal R&D is critical to its 
mission, the Department provides funding for technical 
assistance, including commercialization.
    The National Research Council's 2008 assessment of the SBIR 
program at the Department of Energy noted that the DOE SBIR 
program has made significant progress in stimulating 
technological innovation in three important ways: one, by 
generating patents and publications; two, by stimulating a 
transfer of technology from universities to the market; and 
three, through indirect paths, for example, through knowledge 
transferred to other related projects.
    In addition to the potential for commercial success, SBIR-
funded innovations advance the DOE mission in critical areas.
    The lithium ion battery developed by A123 Systems, for 
example, has an unprecedented combination of safety, power and 
long life compared to previous lithium ion batteries. A123 
Systems and Chrysler recently announced a strategic partnership 
whereby A123 Systems will supply the energy storage systems for 
Chrysler's first iteration ENVI electric vehicles.
    Due to low administrative overhead within the SBIR program, 
the program does not rigorously track job creation and 
retention data. The estimates I provide here are based on our 
own budget-related data for Phase I and findings of the 2008 
National Research Council study that includes a survey of Phase 
II awardees.
    With almost 5,000 Phase I awards made since 1982, we 
estimate that more than 3,000 FTEs have been directly supported 
through SBIR and STTR Phase I awards since the program began. 
With over 2,000 Phase II awards granted so far, we estimate 
that about 12,000 FTEs have been directly supported through 
SBIR and STTR Phase II grants.
    In summary, the SBIR program has enabled successful 
collaborations between small businesses and the DOE R&D complex 
that have advanced the Department's missions to improve the 
Nation's energy, economic, and national security with new 
insights and innovative technologies while supporting a skilled 
technical workforce.
    Thank you.
    [The statement of Mr. James is included in the appendix at 
page 70.]
    Chairwoman Velazquez. Thank you, Mr. James.
    Our next witness is Dr. Kesh Narayanan. He is the division 
director of the Industrial Innovations and Partnerships within 
the Directorate For Engineering of the National Science 
Foundation. The division of industrial innovations and 
partnerships is responsible for SBIR and several university-
industry partnership programs at the NSF.
    Welcome.

                 STATEMENT OF KESH S. NARAYANAN

    Mr. Narayanan. Thank you, Chairwoman Velazquez and Ranking 
Member Graves and members of the committee. Thank you for the 
opportunity to testify on behalf of the National Science 
Foundation.
    The SBIR program at NSF is aligned with the NSF vision of 
advancing discovery, innovation and education beyond the 
frontiers of current knowledge, and empowering future 
generations in science and engineering.
    We recognize that over a third of all scientists and 
engineers work at small businesses, and NSF's SBIR program is 
well positioned to tap the innovation potential of those small 
businesses. We accomplish this by inviting proposals covering a 
wide spectrum of technologies, including agriculture, 
biotechnology, medical applications, manufacturing, energy, 
environment, and nanotechnology.
    Today I would like to share with you our efforts to spur 
the commercialization of technological innovation in small 
businesses and to help them grow employment and revenues.
    One very successful mechanism is our flagship supplemental 
program Phase IIB which provides incentives to find investors 
and strategic partners. We also encourage partnerships with 
other NSF centers and programs to leverage discovery research 
supported by NSF in academia.
    We are keen on workforce development through supplements 
enabling students and teachers to work in the entrepreneurial 
culture of these innovative small businesses. A key 
distinguishing feature of NSF's SNIR program is that we are 
focused on assisting small businesses in bringing innovative 
technologies to the marketplace. We are distinct among SBIR 
programs in that we do not procure any of these technologies 
ourselves.
    Let me share with you two stories of how our awards impact 
society. One is Touch Graphics, which was founded in 1998 to 
commercialize technologies first demonstrated at the City 
University of New York. It has since grown to employ seven 
people. The company's first SBIR grant from NSF in 2000 allowed 
the development of an audio-tactile interactive device known as 
the Talking Tactile Tablet. The product was originally 
conceived as a tool for teaching advanced math to students with 
limited or no ability to use print graphics, and has since 
expanded to broader applications.
    The tablet was awarded a gold medal in 2006 Industrial 
Design Excellence Awards. Under NSF's support Touch Graphics 
also developed a range of technologies for universally 
accessible displays and exhibits at science and technology 
centers, museums, and other venues. In fact, the company is now 
developing talking touchable models for use at the Smithsonian, 
including a map of the National Mall. This helps the growing 
population needing assistive technology in gaining broader 
access.
    My second example comes from Divergence of St. Louis, 
Missouri, which is working to develop and market a safer method 
of preventing crop damage due to parasitic nematodes attacking 
plant roots. It is estimated that worldwide these parasites 
cost $80 billion in annual crop damage. This includes common 
U.S. crops such as soybeans. Divergence was able to take 
advantage of NSF Phase IIB funding, leveraging funds from 
Monsanto. This is long-term research which evaluates potential 
nematicidal molecules in a hairy root system rather than whole 
plants, saving time, money and greenhouse space. Successful 
molecules are then tested in whole plants by Monsanto.
    I should note that NSF supported the original research at 
Washington University that led to the creation of this company.
    These two firms are only a sample from a very broad 
portfolio of NSF-SBIR awards. With regards to the impact on 
employment, the National Academy Study of NSF-SBIR program and 
our own internal assessments indicate that our Phase II grants 
result in the hiring of 1.5 employees and retaining 2 employees 
which are critical factors in today's economy. In addition, we 
enable research and entrepreneurial experience for roughly 100 
college students each year through supplemental awards.
    In summary, we are proud of the role NSF-funded SBIR 
companies play in bringing technological innovation to the 
marketplace, growing their firms, employing scientists and 
engineers, and meeting global competition.
    Madam Chairwoman, this concludes my testimony. I am happy 
to answer any questions that you may have.
    [The statement of Mr. Narayanan is included in the appendix 
at page 81.]
    Chairwoman Velazquez. Thank you.
    As we heard from our own testimonies, SBIR has a record for 
funding cutting-edge research and spurring innovation. 
Companies that got their start through SBIR now employ 
thousands of individuals.
    I would like to hear from any of the members of the panel: 
How can we strengthen the program's ability to create new jobs? 
Let's start with Mr. Brown.
    Mr. Brown. Again, since the program is currently up for 
reauthorization, and again, we are all familiar with the fine 
work of your committee as well as what has taken place on the 
Senate side, in addition to the evaluation by the National 
Academy of Science study, the current administration is looking 
at what is on the table now. They are considering what 
alternatives we should consider and what will be the best 
practices as we move forward.
    Again, as I am sure you realize, our administrator has only 
been there for a few short weeks, and we have a lot of work 
ahead of us. We are looking forward to working with her. But 
again, we have not had a chance to address that issue.
    Chairwoman Velazquez. Mr. Caccuitto, the program is going 
to be up for reauthorization. Based on your experience, how can 
we strengthen it so we can create more jobs?
    Mr. Caccuitto. Well, Madam Chairwoman, I think the first 
thing I would focus on is what many of us believe is the 
strength of this program which is its inherent flexibility in 
how it is implemented among the various agencies that 
participate.
    Giving the managers of the program at the agencies the 
greatest degree of freedom in the execution of the program in 
order to produce outcomes I think is the foremost thought that 
comes to mind if I was to give some sort of guiding observation 
relative to my experience with the program.
    Chairwoman Velazquez. Ms. Goodnight?
    Ms. Goodnight. I just want to thank you for that question, 
especially given our downturn in applications.
    We appreciate the need to incentivize companies 
participating in this program. As I mentioned, we don't know 
all of the reasons. It could be as simple as the economic 
downturn in the biotech sector. But we actually believe that 
there are other issues related to the current eligibility 
rules, certain aspects of the program structure, for example. 
Companies who currently receive a Phase I SBIR cannot move to a 
Phase II STTR and vice versa. Companies who receive a Phase I 
STTR, where they may not need the university involvement at 
such the requisite level, can't transition to a Phase II SBIR. 
So there is an inability to transition between the two 
programs.
    The award levels have not been adjusted since 1992.
    Chairwoman Velazquez. Yes, I am going to touch on that 
issue.
    Let me refer this question to you, Ms. Goodnight. In 2005, 
then NIH Director Mr. Zerhouni wrote in a letter to SBA that 
NIH aims to ensure that small business concerns with 
substantial venture capital companies' support in the 
biotechnology and public health R&D arena are able to receive 
SBIR awards from NIH. Why does a firm's access to venture 
capital have such a significant impact on the work that NIH 
does?
    Ms. Goodnight. Because many of the projects that we are 
funding, particularly in drug discovery, drug development, even 
developing medical devices, those types of companies, in order 
to be successful, are going to have to attract additional 
investments, be it through venture capital or raising funding. 
Even with strategic partners, in order for those projects to 
make it to the marketplace, they are not going to be able to go 
it alone and are going to look for those infusions of 
investment.
    Those same companies have other ideas in the pipeline, and 
they need to do that because many of these projects are going 
to fail. That is the "I" in the SBIR program. In order for to 
us to be continually churning that innovation lifecycle engine, 
the issue we are facing now is companies who can take a lead 
product or drug molecule to a certain stage. They then may have 
other ideas that would be very fitting for SBIR, can't get the 
funding there nor can they get it elsewhere.
    Chairwoman Velazquez. NIH awards multiple Phase II grants 
to small firms in order to help prepare the most promising 
research programs for commercialization. Of course, larger 
awards means fewer awards. Some have suggested that such a 
pattern leads to lower quality research and poorer results. How 
would you respond to that?
    Ms. Goodnight. I would ask you to repeat the second part of 
the issue. Yes, we do provide larger awards when the science 
justifies deviating from the $100,000 or $750,000.
    Chairwoman Velazquez. And if we provide larger awards, that 
means there will be fewer awards to give to other applicants. 
Some have suggested that such a pattern leads to lower quality 
research and poorer results.
    Ms. Goodnight. I think that if companies are only 
submitting their mediocre ideas, I can understand where perhaps 
that concern is coming from. There are projects that are in the 
$150,000 to $200,000 range that are just as important as those 
that are in the higher level range. I can't really answer that 
concern.
    Chairwoman Velazquez. Occasionally a small company may have 
progressed beyond the Phase I feasibility studies of technical 
merit. In these cases, the company's research may be suitable 
for a Phase II award. Do you believe that under these 
circumstances, the company should be able to bypass Phase I if 
it can certify that it has completed the testing and 
feasibility studies required under Phase I? I will ask for any 
of the other agencies to respond to that question.
    Mr. James?
    Mr. James. Yes. I already had a whole good answer for the 
last question, but I will work on this one, too.
    I think that our program would probably not adopt this idea 
of awarding a Phase II without a Phase I. I just see a lot of 
difficulty. I don't see how we would work it out.
    Chairwoman Velazquez. Okay.
    Do you have any comments, Mr. Narayanan?
    Mr. Narayanan. I would agree with Larry James from Energy. 
Because we have an external peer-review mechanism for reviewing 
incoming proposals which is very rigorous, it somewhat relates 
to the first question in the sense that we have an SBIR 
advisory committee, external advisory committee, which has been 
looking at our program for more than a decade. One of the items 
they pointed out is the whole purpose of our SBIR funds, if all 
they have done is research and they have not commercialized and 
grown, it does not serve the purpose.
    So, in order for a SBIR proposal to come in front, they 
need to have not only a really high research quality but a high 
commercial potential ability.
    So one of the points they recommended, which we included in 
our SBIR evaluation, is in addition to having external 
technical reviewers, we have included in the last several years 
external what I will call commercial reviewers. The point being 
that the rigor we give would be difficult to evaluate from the 
outside.
    Chairwoman Velazquez. In looking at how can we strengthen 
the SBIR program, we have to answer the question about the 
valley of death that Ms. Goodnight made reference to. So it is 
critical that we see more research make it from the laboratory 
to the marketplace. Would a Phase III grant aimed specifically 
at commercialization help more small firms bridge this gap?
    Ms. Goodnight, Mr. Caccuitto, you made reference to that 
issue?
    Ms. Goodnight. I think any additional resources, whether 
they are called Phase III or Phase II or Phase IIB, are 
definitely critical in helping these companies bridge that gap 
because they get to a stage, at least for our companies where 
the Phase I and the Phase II is only so much, to put them on 
this pier and they often have not progressed far enough to 
attract the additional investments that they need.
    Chairwoman Velazquez. Any other comments?
    Mr. Narayanan. I mentioned in my testimony on the Phase IIB 
mechanisms that we are using currently to incentivize existing 
Phase II grants to move towards the Phase III, but one of the 
observations that we have made is the ability to commercialize. 
The examples I gave, for example, in the agricultural area, 
sometimes it takes almost a decade before it goes through all 
of the approvals, et cetera. And in the IT area, it may be very 
fast. So even in the Phase IIB, we try to do it within the 
timeline of the two years of the Phase II grant, but not all 
technologies are able to bring this third party commitment 
within the 2 years. So that puts some technologies in a bind 
which may have leveraged this. So I am answering not that we 
need more Phase III special funding, some mechanism that we 
could use as Phase IIB beyond the 2 years. Right now, once it 
is done, we can't go back.
    Chairwoman Velazquez. Mr. Brown, when Administrator Preston 
last testified before our committee on SBIR in March 2008, I 
asked him whether the SBA supported increasing the amount of 
SBIR awards. He responded that SBA was supportive of an 
increase, and that the administration has been working in-house 
on a rule to address that. Is SBA still planning on issuing a 
rule that will increase the size of SBIR grants? Are there any 
other regulatory changes that you envision in the coming year?
    Mr. Brown. Madam Chairwoman, in follow-up to your question 
and in follow-up of the testimony of former Administrator 
Preston, yes, SBA has looked at the issue. However, similar to 
my response to the earlier question, the current administration 
is looking that over. And once they have a chance to evaluate 
that, we will be reporting.
    Chairwoman Velazquez. I look forward to discussing it with 
the administrator.
    Now I yield to Ranking Member Graves.
    Mr. Graves. Thank you.
    To follow-up on your question to Mr. Brown, the previous 
administrator always expressed concerns about the role of 
venture capital when it came to small businesses who 
participate in the SBIR programs. Does the administration have 
a stance, or are they looking at that?
    Mr. Brown. Again, the administration is looking at all of 
the reauthorization issues, the size of the awards, the VC 
issue, et cetera. Again, it is a wide berth of information and 
data. They are very challenging issues. So until the current 
administration has a chance to get it under their belt, they 
are not going to chime in, in terms of a position.
    Again, after serving in this office for several years, I am 
very familiar with the issue. Going back to our advanced notice 
of proposed rulemaking back in 2004, the series of hearings 
that we had in 2005, so it is a very challenging issue. We 
understand the complexities of it, and we are evaluating it.
    Mr. Graves. This committee is obviously very interested in 
that and how venture capital plays. And I hope you take the 
statements that have been made by the committee and what we 
have done in the past in terms of legislation into account.
    I would also be very interested if you guys have any 
suggestions in improving outreach efforts in the rural areas, 
which have traditionally been underrepresented in the SBIR 
program. That obviously is an issue for me because I represent 
a very rural area. There is a lot of opportunities out there, I 
think. I don't know if you all have looked at that or are just 
starting to look at it or if you have any suggestions. I would 
certainly be open to any of those.
    Mr. Brown. Again, that is one of many areas that we are 
looking at. Yes, we are looking at it.
    Chairwoman Velazquez. And will you have an answer in the 
next 2 or 3 weeks? The program expires in July, you know that, 
right?
    Mr. Brown. Yes, ma'am. I will take your message back to the 
administration.
    Mr. Graves. Thank you.
    Chairwoman Velazquez. Ms. Dahlkemper.
    Mrs. Dahlkemper. Thank you, Madam Chairwoman.
    I have a question for Dr. Narayanan. Federal agencies do 
not have a strong record when it comes to funding women and 
minority research firms. You have instituted the research 
assistant supplements for high school programs to address this. 
Do you think other agencies can emulate your approach, and what 
do we need to do to encourage more women and minorities to 
apply for these programs?
    Mr. Narayanan. Mrs. Dahlkemper, obviously, I can't speak 
for other agencies.
    But what you are referring to is what we call the RASHSS 
program, Research Assistance Supplements for High School 
Students. The proposal has to encourage efforts to bring 
minority students into supporting the research award that is 
going on.
    We have had, even as I speak, limited success, and we need 
to do even more probably outreach and get our community to be 
energized. So we are excited by what the opportunities or 
possibilities are, and we find it is getting some traction. We 
need to do more of it.
    Can other agencies emulate? I will have to allow them to 
answer that.
    Mrs. Dahlkemper. I will open it up to the other agencies 
here and see if you have any ideas on how we can encourage 
those firms that are run by women and minorities to apply for 
this program.
    Ms. Goodnight. I will just add something for NIH. We also 
offer diversity supplements, and it is my understanding that 
our SBIR and STTR awardees can use those diversity supplements 
to their existing grants. But more importantly, I think it goes 
to Dr. Narayanan's point about the need for more outreach.
    We have actually committed to doing a number of conferences 
this year that are specifically focused on minority and under-
represented groups. I remember back when there was the FAST 
program, the Federal and State Technology Partnership Program 
and the rural outreach program. States actually were able to 
hold more outreach events and get the agencies there speaking 
one on one with these companies where they may have this 
intimidation factor to apply. But when they actually talk with 
us, they realized, oh, maybe I can go through this.
    Mrs. Dahlkemper. What happened to that program?
    Ms. Goodnight. To my knowledge it expired with the last 
reauthorization, in 2005.
    Mrs. Dahlkemper. Dr. Narayanan?
    Mr. Narayanan. Thank you. I just want to elaborate a little 
bit if I may. There are several supplemental programs which we 
document in our written testimony which attempts to link the 
SBIR program with programs at NSF which serves the minority 
community, which include the community college connections, 
which include predominantly minority research institutions, and 
these are vehicles to make that connection to make the students 
and facility aware of the entrepreneurial opportunity.
    One of the things our SBIR advisory committee, they formed 
a subcommittee on this very topic because this was of great 
interest to them. One of the recommendations they came forward 
with which was very recently implemented is a mentorship 
program, what they said was it is not only outreach, you need 
to really help them, educate on putting forward high-quality 
proposals. So what we are offering as we speak is to existing 
grantees of ours who are seasoned, if you will, and telling 
them, you know, can you reach out to the new minority, new PIs, 
principal investigators, take them under your wing and help 
them put forward high-quality proposals. We just recently 
launched it, and we don't have any evaluation yet.
    Mrs. Dahlkemper. I would be interested in seeing how that 
program goes forward.
    Thank you very much.
    Chairwoman Velazquez. Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    With the reauthorization, there is a discussion of changing 
the levels, or we need to discuss the levels. What percentage 
of your clients would require or could use additional moneys? 
Do they come back to you for more? What percentage could 
actually use more, just a percentage?
    Mr. Brown. Well, I would defer to my colleagues here since 
they have the specific data from their specific agencies, and 
they are where the rubber meets the road.
    Mr. Caccuitto. Congressman, it would be difficult to know 
what that number is because we don't track that sort of data; 
specifically, whether a firm requests more resources or not.
    But looking at some data historically, for example the 
fiscal year 2000 year group, eventually about 31 percent of 
those Phase II awardees ended up being funded beyond the award 
guidelines in order to continue their technological development 
and increase their chances of success.
    Mr. Luetkemeyer. Where did they go to get the money?
    Mr. Caccuitto. Sometimes back to their respective agencies. 
Sometimes to different agencies within the Department.
    Mr. Luetkemeyer. So you have multiple agencies that may 
work together?
    Mr. Caccuitto. That happens sometimes, absolutely.
    Mr. Luetkemeyer. That was my question. I was going to 
follow here with each one of you.
    Ms. Goodnight. For NIH, I, too, am going to base this on 
fact.
    Our SBIR median award for Phase I in 2008 was about 
$151,440; and for Phase II, $841,381.
    For STTR, the median award size was $149,711; and for Phase 
II, $907,970.
    So if that is the median, that gets to the percentage or so 
that are in need of those additional dollars. There are 
statutory guidelines, and so we have been given the ability to 
exceed where it is scientifically justified.
    Mr. Luetkemeyer. So are you basically going above it pretty 
regularly?
    Ms. Goodnight. As I mentioned, since they haven't been 
adjusted since 1992, we are at those medians. Science is 
becoming more expensive. In order for us to continue to 
encourage the most innovative ideas, rather than those that can 
just fit under the $100,000 or $750,000, we are going beyond.
    Mr. Luetkemeyer. How do you use your discretionary ability? 
Is it within the statute that allows you to do that, or do you 
need to go back to the SBA and get some waivers?
    Ms. Goodnight. It is a statutory guideline, but we have 
also spoken and worked very closely with SBA so that they 
understand the areas of research that typically need this 
additional funding.
    Mr. Luetkemeyer. So your average award is greater than what 
the level of award normally is, or should, or is statutorily 
there? Very good.
    Mr. James.
    Mr. James. Well, we are a little bit like DOD. We don't 
keep facts on that, but I can give you some information. We did 
institute what we called a Phase II supplemental a couple of 
years ago. Those are the opportunity for a Phase II awardee to 
get another quarter million dollars in 12 more months on their 
Phase II award; but they have to be invited by the program 
officer. It has to show enough promise. It has to be important 
to the impact of their mission and so forth.
    The number of those, we fund about 150 Phase IIs. We might 
get 10 percent, maybe 15 supplementals. So that is an order of 
magnitude.
    Mr. Luetkemeyer. Dr. Narayanan?
    Mr. Narayanan. For us, as I mentioned, our mechanism is 
primarily Phase IIB. Our Phase II awards don't go up to the 
limit allowed. We give $500,000 Phase II awards. So we use the 
supplemental mechanism Phase IIB that I described to go beyond, 
depending upon the ability for them to bring additional third-
party funds.
    The need for additional funds is also strongly dependent on 
technology. Since we are in a wide spectrum of technologies, 
some areas do not necessarily need additional money and they 
can go very fast to the marketplace. In fact, they have to go 
fast. But some of them require a longer time.
    Mr. Luetkemeyer. One quick question for Mr. Brown.
    How many dollars do you have left in the program at the end 
of the year with regards to the allocation that is allowed to 
you, or do you have to turn down a lot of applicants for these 
funds, very quickly?
    Mr. Brown. Again, SBA doesn't give out funding directly. It 
goes directly to the agencies that are here and the other seven 
that aren't here.
    At the end of the year, speaking of the program as a whole, 
it varies from year to year. Sometimes there is an agency or 
two that may have a few dollars that went unspent. And in the 
other years, that same agency may go over the threshold. So it 
depends by year.
    Mr. Luetkemeyer. This past year, up or down?
    Mr. Brown. It is up. In terms of what went out, it was up.
    Mr. Luetkemeyer. There was more requested than what you had 
available?
    Mr. Brown. No, I am talking about the agencies that met the 
threshold as opposed to those that didn't. If you are talking 
about are there more applications, there are always more 
applications than the amount of money that is available, yes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Chairwoman Velazquez. Mr. Moore.
    Mr. Moore. Thank you, Madam Chairwoman.
    You all have firsthand experience with the SBIR program. As 
Congress looks to reauthorize the program, what are some of the 
recommendations that you have for how the program can be 
improved?
    Some of the reforms that are talked about include 
increasing the SBIR funding level, I am sure nobody wants that; 
increasing commercialization initiatives to provide a better 
bridge between research and development and the attraction of 
private-sector partners; improving the administration of agency 
SBIR programs; and improving outreach to small firms owned and 
controlled by women, veterans and minorities. I would like to 
hear if you have any response to those or thoughts about those 
or others? Mr. Brown.
    Mr. Brown. Once again, the administration is looking at all 
of these issues. It is a mouthful. There are a number of 
issues. Some of them are a lot more complex than others. Some 
of them are fairly basic, and some are more complex. And not 
only do they apply across the board for the entire program, but 
if you even look at the four other colleagues I have here, they 
apply differently at the agencies that are here.
    But speaking in general, echoing what has been I said by my 
colleagues, as well as what has been said by the National 
Academy study, the flexibility that the program has needs to be 
moved forward.
    So as we look at these issues, in terms of eligibility, the 
VC issue, the guidelines, size of awards, whether we should 
increase the 2.5 percent and other issues that we are 
discussing, that we just be mindful of how flexible the program 
has been. And it seems that is the one area that everyone 
agrees moving forward, that we need to try to maintain that 
flexibility, while at the same time maintaining a structure 
that will maintain the integrity of the program.RPTS 
McKENZIEDCMN MAYER
    Mr. Moore. Do any other members of the panel have thoughts 
about that, any observations?
    Ms. Goodnight. I would echo Mr. Brown's comment about the 
importance of flexibility in this program. That is really what 
has helped these programs succeed, given our varying missions.
    I think there is one area that is worth just sort of 
factually stating. That is that currently the set-aside amounts 
for SBIR and STTR must remain separate, and they can't combine 
into a total set-aside of 2.8 percent. So this gets more to the 
flexibility issue again, of managing the programs effectively 
to fund the most meritorious SBIR or STTR projects under that 
set-aside.
    Mr. Moore. Does anybody else have any thoughts?
    Mr. James. I think the technical assistance aspects of the 
current law have made it pretty difficult for us to provide 
commercialization assistance as we would like. I think there 
are some efforts in the new authorization to fix that. I think 
they need to raise the amounts and also specify in the Phase II 
that it is not inside the grant; the government has the ability 
to have a contractor and provide and so forth.
    And you mentioned administrative resources. Certainly we 
would all like to have some more money to help us manage the 
program better. I think a prime example of that here is, my 
colleague here, next to me, keeps talking about his Phase 
II(b); and I absolutely agree, I think it is a flagship. And I 
wish I could emulate it, but I don't have the resources in my 
procurement authority to do that. It takes quite a bit more 
procurement specialists to administer that kind of a program, 
and that is--
    Mr. Moore. Any thoughts, sir?
    Mr. Narayanan. I think from--NFS's point of view, I will 
echo what others have talked about flexibility, because each of 
us has a different mission. And you have seen some of the 
things like Phase II(b), because of the flexibility, we are 
able to implement.
    One area that we have raised in the past which is we are 
very fortunate at NSF that we have dedicated SBIR program 
managers from the topic generation to the evaluation to awards 
management by technology topics. These are technology managers 
who will manage the program. And the way we are structured is, 
I know they cannot use the program funds to actually go visit 
or, you know, help the companies in terms of mentoring or 
making connections. So we take reverse attitude of trying to 
bring all the companies to Washington, D.C., spend maybe like 
10 minutes per company, which is not really all that, you know, 
the best practice.
    Mr. Moore. Thank you. And I yield back my 7 seconds.
    Chairwoman Velazquez. Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Madam Chair. I really don't have 
a question. I may use Dennis's 7 seconds. But I would just like 
to reach out to--is it Joe Caccuitto?
    Mr. Caccuitto. Caccuitto, sir.
    Mr. Ellsworth. That was my second guess for the 
pronunciation.
    Admiral Sestak and I have been appointed to a six- or 
seven-person committee to look at the military procurement 
system, and I would just like to reach out to you, any 
suggestions you would have to streamline that system, make it 
more efficient and more cost effective for the taxpayers. You 
can contact one of our two offices if you have input in that.
    So, with that, I don't have a direct question for small 
business. But I would yield back.
    Chairwoman Velazquez. Okay.
    Mr. Thompson.
    Mr. Thompson. Thank you, Madam Chairman.
    My district is Pennsylvania Fifth. It is one of the most 
rural districts that are out there, and SBIR programs just play 
a tremendous role, mostly, thankfully, to--we have Penn State 
there, and we have a lot of kind of high kind of niche-type 
innovations that come out of that applied research lab. So this 
is such an important program for my district from many 
perspectives.
    Let's start with--Mr. Brown, what are your suggestions to 
improve outreach efforts to rural areas that are traditionally 
underrepresented in the SBIR program?
    Mr. Brown. First of all, I think we need to have better 
collaboration amongst us. I think we are doing a fairly good 
job now of interacting with one another and sharing best 
practices in terms of what the respective agencies have done. 
But, again, when there is a best practice at one particular 
agency, we need to highlight that and share it with others.
    Another thing that we should consider is doing more 
outreach with the States. Again, we have quarterly SBIR 
national--excuse me--two SBIR national conferences a year to 
date, and we always have a meeting of the State 
representatives.
    It is always a good networking session. You get key people 
from around the country that have the story from their 
particular State. And again it is the same thing, sharing best 
practices: What are you doing in your State? You may find out 
that a State has a Phase Zero that they have established in 
their particular State. And I am talking about something about 
the program itself, but the same with outreach, you know, what 
types of things are bringing back the best rewards for you?
    In addition, I also know that there are several States that 
are doing some unique things. I know Maryland, for example, 
since they are one of our neighbors. I don't know if anybody on 
the panel is from Maryland, but Maryland had a very good 
program where they provided very good direct outreach for 
minorities in Prince George's County. It was targeted for that 
particular county to increase the number of technology-oriented 
minority companies; and I understand they had very good 
results. And, again, that is just a snapshot of the types of 
things that can be done.
    I should also add that with the program managers we have 
established an outreach subcommittee, and we are exploring 
different ways of doing outreach as well as conducting the 
national conference.
    Mr. Thompson. Okay. Thank you.
    Well, actually, I had the same question which had to do 
with best practices. So I appreciate your getting into that 
question.
    Ms. Goodnight, in your opinion, what is causing the drop in 
the applicant pool for SBIR grants at NIH?
    Ms. Goodnight. We don't know all the factors. We believe 
some of them may relate to the fact that some firms are losing 
their eligibility. Some firms don't see the incentive 
opportunities based on the current award amounts. Some are not 
reapplying even though they have that opportunity to reapply if 
they are not selected the first time. Some may find that 
process very daunting, and this gets back to the outreach 
efforts.
    Those are just a few.
    Mr. Thompson. Okay. Thank you.
    Ms. Goodnight. I would add one more. I would say with our 
receipt dates schedule, which are April 5, August 5 and 
December 5, the community is asking a lot of questions about, 
What about the August 5 and December 5 due dates? Because there 
is a lot of uncertainty about the program at this point.
    Mr. Thompson. Okay.
    And some of those first variables you identified as 
reasons, are there any strategies in place to address some of 
those contributing factors?
    Ms. Goodnight. With regard to the eligibility, I think that 
we have spoken enough about that; and given how much we can say 
about it, we certainly believe that the current rules are 
excluding some companies who used to participate and are no 
longer. With regard to not feeling that the process is a 
daunting one, that gets back to the outreach and doing a lot of 
mentoring and helping these companies.
    Mr. Thompson. Okay. Thank you.
    One final question in my remaining seconds: Mr. James, can 
you talk a little bit about your outreach to rural areas and 
initiatives to promote that?
    Mr. James. I think we are very active in our regional 
meetings. We go to Johnstown, for example. We go up there and 
have an outreach. Several program managers from some of the 
agencies will go and we will describe the opportunities for its 
small businesses, encourage them to contact our program 
offices, sit down with them in one-on-ones, talk to them about 
what ideas they have, try to find a pipeline in the Department 
that would help them directly involve the Department in their 
development.
    We probably do at least two or so every month, regional 
activities. Indianapolis. In other words, we do a lot of 
regional. I know we have an annual meeting but we do our best 
because we think this is helping us get more applications.
    Our applications, we certainly can't claim that that is why 
our applications are going up. Obviously, our applications are 
going up because of the price of oil, for example. So it is 
something that we believe very strongly in.
    Mr. Thompson. Okay. Thank you.
    Thank you, Madam Chairman.
    Chairwoman Velazquez. Mr. Sestak.
    Mr. Sestak. Thank you, Madam Chairwoman.
    When we come out of this economy--if the modeling is 
correct and things we have tried to do are correct, by about 
the middle of 2010 we will be back at GDP level of 2007. But we 
have lost a trillion dollars in our economy, and if GDP growth 
then begins to be 2.5 percent per year, which is what it 
averaged between 2001 and 2007, it will take us 3 years to soak 
up the $1 trillion that we have lost because that is what it 
shows in the model, about $350 billion a year. In short, we 
won't even recover the lost capability if we just get back to 
the decade of growth of GDP this year.
    And this year we are going to lose 4.5 percent GDP. Japan 
is going to raise, go up 6.8 percent GDP.
    The point of this is that unless we are able to really 
energize our economy above its typical growth, we aren't going 
to make it in any real time. So I would like to just talk about 
venture capitalists for a moment and ask a question, if you 
don't mind, ma'am.
    Can you talk a bit about what you think the impact could be 
if, in one part of this effort to try to--not just stimulate 
our economy; we have got to get it going about 4, 4.5 percent 
if we want to be back beating China's kind of competitiveness 
pretty darn soon. Can venture capitalists in the SBIR, can they 
play an important role in that?
    SBIRs aren't that large. They have got a lot of money. What 
is the impact of this on their portfolio if they do have access 
to this? Because, to me, it just seems like real opportunity 
here for the common good to get us going if we open this up 
again to the venture capitalist community.
    Ms. Goodnight. The SBIR and STTR programs, as you note, is 
probably not a significant amount of money when you compare it 
to what they are actually going to need to actually bring a 
product to the marketplace. It is the leveraging that it plays 
a huge role in.
    And so these companies who are able to get Phase I and 
Phase II and Phase II(b), or for our agency a competing 
renewal, and further their progress into some of the clinical 
studies that are necessary, that is when individuals become 
more venturesome and will start putting additional dollars into 
those projects.
    And then those same companies may have, as I mentioned, 
additional ideas in their pipeline for which the SBIR program 
is perfect because they have not taken them through that 
necessary feasibility study. And then we continue to see the 
dollars go into those projects, and those that show promise get 
furthered along that commercialization pathway to get 
attraction of additional investments.
    So this is a cyclical process where SBIR has in the past 
played a large role. It has the potential to play a very 
important role for these types of companies that need to raise 
the financing.
    Mr. Sestak. So you would be a proponent of it?
    Ms. Goodnight. [witness nods.]
    Mr. Sestak. If I could ask you, Mr. James. There has been 
some discussion that potentially certain sectors should be 
focused upon; biologics, for example, from start until you get 
that product out there is about $1.2 billion--to your point, 
ma'am, about the cost of it. Should we not just let them in, 
but should we also try to focus this?
    I mean, people have been talking here about retooling our 
economy in the midst of things in health care or energy or 
things like that. Should there be a way we look at it that way 
with venture capitalists or just leave it as it is? Because 
sometimes agencies kind of say, Come here, SBIR, help me do 
what my programs already are, rather than maybe being quite 
innovative and entrepreneurial.
    And, again, I go back to the reason why I think it might be 
a good idea, which is, how do we quickly soak up the $1 
trillion that we have lost? Growth of 2.5 percent is 
unacceptable for the next 5 years.
    Mr. James. As you know, DOE has a loan program, and I have 
been trying to work with our loan program to get them involved 
in looking at small businesses and see what we can do to fast-
track loans. I don't know how that is going to happen. But I 
presume your question is, do you think we--do we believe that 
venture capitalists could play an important role in the SBIR 
program. Is that what you are asking?
    Mr. Sestak. Should we try to focus it on certain types of 
sectors? Most venture capitalists seems to be concentrated a 
lot of times in California or Massachusetts. That is 
demographics.
    But should we be looking at sectors such as health or 
energy? Or should we just let them in and let the cards fall as 
they might?
    Mr. James. My experience has been that the venture capital 
community is not all that interested in our program. Our Phase 
II's are limited to $750,000, and that doesn't seem to--
    Mr. Sestak. All right.
    How about for Ms. Goodnight? What would you say?
    Ms. Goodnight. It is important.
    Mr. Sestak. Do you understand why I am asking?
    Ms. Goodnight. I do. I am trying to phrase my question from 
where I sit.
    So venture capitalists, as I understand how they play in 
this game, they put their money into a number of different 
sectors, whether it is biomedical, whether it is energy, 
whether it is IT; it is where the hot technologies are, and it 
is where they see that they are going to get a return on their 
investment.
    Now that may take a number of years. And, certainly, from 
the SBIR companies participating in the program to get them to 
that stage, it is 5, 7, 10 years down the road. On the IT side, 
however, it is a very short turnaround. So it is a number of 
sectors where they are investing in.
    Mr. Sestak. So you would let it open. Thank you.
    And do you feel the same way about angels?
    Ms. Goodnight. I believe angels are doing the same thing. 
They are investing in technology areas that are broader than 
biomedical research.
    Mr. Sestak. Okay. Thank you.
    Chairwoman Velazquez. Mr. Thompson, I understand you have 
another question.
    Mr. Thompson. Well, actually, thank you, Madam Chairman.
    More of a request and to kind of follow up to my first 
question I had for you, Mr. Brown, I was wondering--you had 
made reference to the good collaborative work that is going on. 
What I would like to request is, if we could get a copy of the 
report for the subcommittee on outreach, I think, as was 
described; I think that would be real helpful for myself and 
for the whole panel if we could get a copy of that, please.
    Mr. Brown. Will do.
    Mr. Thompson. Thank you.
    Chairwoman Velazquez. Okay. Any other member that wishes to 
make any questions?
    If not, Mr. Narayanan, I have one last question and I would 
like to ask that question to you.
    NSF is widely recognized for its effective administration 
of the SBIR program. And how has NSF been able to administer 
its program so effectively without a separate line item for 
program management?
    Mr. Narayanan. Madam Chairwoman, I think to start off, you 
fully recognize that SBIR programs started in NSF even before 
1982 by Mr. Roland Tibbetts. So NSF had a certain degree of 
ownership to the program from day zero, if you will. So that 
culture has resulted in support from NSF management to staff 
our program with dedicated program officers who are experts in 
the specific technology areas.
    As I mentioned earlier, we are very fortunate that we have 
program managers distributed by--in the broad technology areas 
from materials manufacturing to biotech to information 
communication technologies. So we have got--I would say the 
dedicated program officers makes a difference. And those 
dedicated program offices, every one of them I can say has 
either--every one of them has an industrial background.
    Chairwoman Velazquez. Thank you.
    For the record, can each agency tell the committee if they 
will benefit from a separate budget for SBIR administration and 
program management.
    Mr. James.
    Mr. James. I think I mentioned earlier that we certainly 
could. Site visits, a whole list of things.
    Chairwoman Velazquez. Ms. Goodnight.
    Ms. Goodnight. NIH also would support additional funding 
for administrative costs for managing these programs.
    Chairwoman Velazquez. Mr. Caccuitto?
    Mr. Caccuitto. We funded a RAND study last year, looking at 
assessing the baseline overhead cost to the program. They came 
up with an estimate of at least 6 percent for us. So that 
indicates to me we have a very resource-intensive program, and 
therefore, I would say more resources are better than less.
    Chairwoman Velazquez. Okay. And I guess that you don't have 
an answer since we have a new administrator and it will take 2 
or 3 more weeks.
    Mr. Brown. Yes.
    Chairwoman Velazquez. Thank you.
    I want to thank all the witnesses for being here today and 
for your insightful testimony. Thank you very much.
    And I will ask the second panel to please take your seats.

    Okay. Well, welcome, lady and gentlemen.
    Our first witness on the second panel is Mr. Joshua Green. 
Mr. Green is general partner with MDV-Mohr Davidow Ventures. He 
joined MVD's investing team with a focus on cleantech 
companies. Throughout his career, Mr. Green has guided 
entrepreneurs and helped to build successful companies, 
including Yahoo and Target Therapeutics. He is here to testify 
on behalf of the National Venture Capital Association. NVCA is 
comprised of more than 400 firms.
    Welcome, Mr. Green.

   STATEMENT OF MR. JOSHUA GREEN, GENERAL PARTNER, MDV-MOHR 
  DAVIDOW VENTURES, MENLO PARK, CALIFORNIA, ON BEHALF OF THE 
              NATIONAL VENTURE CAPITAL ASSOCIATION

    Mr. Green. Thank you very much.
    Chairwoman Velazquez and members of the committee, my name 
is Josh Green. I am a partner at Mohr Davidow Ventures, a 
venture capital firm in Menlo Park, California. I am also a 
member of the National Venture Capital Association, and my 
views today represent the 460 members of NVCA, which account 
for over 90 percent of all the venture capital under management 
in the United States.
    Like all VC firms, Mohr Davidow invests in entrepreneurs 
that are creating innovative small businesses that will 
hopefully grow into large, successful enterprises. Our firm has 
been in business for more than 25 years, taking a hands-on 
approach to building start-up companies in the high tech, life 
sciences and alternative energy sectors. As a cleantech 
investor myself, I am focused on creating businesses that will 
reduce our country's dependence on foreign oil and help 
preserve our environment while creating domestic jobs and more 
revenue.
    In 2008, venture capitalists invested more than $4.6 
billion into clean technology businesses alone, that are 
innovating in a wide variety of areas. Many of these companies 
are founded on discoveries made through basic government-funded 
research. I am here today on behalf of those current and future 
companies. As an industry, we strongly support the 
reauthorization of the SBIR grant program, and we hope that the 
past inequalities are corrected so that all small businesses 
can compete for these critical funding grants.
    To begin, I would like to address several misconceptions 
that we believe exist and are used to argue against VC 
companies' participation in the SBIR program. The first is that 
venture-backed companies do not need SBIR programs because they 
are strong fully-funded entities. This is patently false. 
Venture-backed companies are quintessential small businesses; 
many are pre-revenue and most have fewer than 10 employees. 
Like all small businesses they operate on very tight budgets 
and are extremely fragile.
    Venture-backed companies must consistently meet agreed-upon 
milestones to receive continued funding. Venture firms do not 
have unlimited funds and have contractually finite pools of 
resources to devote to any particular company.
    The second misconception is about VC funding itself. 
Venture capital moneys are used to build businesses, not to 
perform research. However, a company that receives venture 
funding may have other innovations in the pipeline that are 
worth pursuing, and it is for these new projects that the 
company would apply for an SBIR grant.
    Businesses must continue to innovate, and a current SBA 
interpretation forces these companies into an unfortunate 
dilemma for worthy new projects. This scenario has resulted in 
small businesses at best delaying important discovery projects 
and at worst abandoning this important work altogether.
    Another misconception is that venture capital firms are 
equivalent to large corporations, and therefore the companies 
that they fund should be excluded from consideration for SBIR 
grants. We agree that large corporate-owned businesses should 
not be allowed to participate in the small business program. 
But venture capital firms and their portfolio companies are not 
large corporations; they are private partnerships existing to 
finance the growth of an emerging growth company.
    At a time when the national debt is high and government 
resources are stretched thin, we believe the Federal Government 
should look toward the private sector for solutions to our 
Nation's health care, energy and national security challenges. 
Instead, the current SBA eligibility rules throw costly, time-
consuming and unnecessary hurdles in the path of government 
agencies seeking to collaborate with venture capital-backed 
companies. We believe this is a huge loss for the country.
    Throughout the history of the SBIR program, majority 
venture-owned small businesses have applied for and received 
SBIR funding. This historical precedent strongly suggests that 
their participation has caused no harm to the program or to 
other small businesses. In fact, the recent National Academy of 
Sciences study found no evidence that other small businesses 
have ever been crowded out by the participation of venture-
backed businesses.
    In recent years, as cleantech investing is growing, the 
venture capital industry has been working more closely with the 
Federal Government and key agencies like the Department of 
Energy and EPA. Those agencies have been touting the SBIR 
program as a mechanism to advance their research dollars with 
promising venture-backed companies. The industry is poised to 
work with them. The policies enacted by this Congress, this 
administration, will either help or hinder that effort.
    The SBIR program is a wonderful mechanism for government 
and private sector to come together and do what desperately 
needs to be done to support a strong economic recovery, help 
these small companies grow and innovate. But the SBA's past 
policies have seriously negated the positive impact of venture-
backed small businesses.
    Venture dollars and SBIR dollars play complementary roles 
in financing innovation. One is rarely, if ever, a substitute 
for the other.
    We urge Congress to reauthorize the program with provisions 
that ensure venture-backed companies have a fair chance to 
thrive under the SBIR program alongside their non venture-
backed counterparts. Doing so, we believe, will only strengthen 
the future success of the program.
    I would like to thank the committee for the opportunity to 
share with you today the challenges our small venture-backed 
businesses have faced under the past restrictions and why these 
grants are critical to the ongoing vitality of innovation and 
job creation in the United States.
    I am happy to answer any questions you might have.
    Chairwoman Velazquez. Thank you, Mr. Green.
    [The statement of Mr. Green is included in the appendix at 
page 93.]
    Chairwoman Velazquez. And our next witness is Ms. Rachel 
King. She is the founder and chief executive officer of 
GlycoMimetics Inc. GlycoMimetics has a specialized technology, 
which is producing proprietary drug candidates with focus on 
inflammation, cancer and infectious diseases. Ms. King is here 
to testify on behalf of the Biotechnology Industry 
Organization, the world's largest biotechnology organization 
with over 1,200 members.
    Welcome.

    STATEMENT OF MS. RACHEL KING, CHIEF EXECUTIVE OFFICER, 
   GLYCOMIMETICS, INC., ON BEHALF OF BIOTECHNOLOGY INDUSTRY 
                          ORGANIZATION

    Ms. King. Chairwoman Velazquez and members of the 
committee, thank you very much for giving me the opportunity to 
testify today. And I want to thank you for holding this hearing 
and thank you for your support of the SBIR program and for your 
focus on this issue, because this is a critical issue to the 
biotechnology industry. And I think it is really very, very 
important that we understand the significance of the program, 
how important it is, particularly in this economic climate; and 
I do have some specific ideas about how we can improve it, to 
enhance the program even further.
    As Congresswomen Velazquez mentioned, I am here to testify 
on behalf of the Biotechnology Industry Organization. I serve 
on the board of directors there, and I also chair the emerging 
companies section, which is where we particularly represent 
companies like ours--young, early-stage companies that are 
focused on cutting-edge research, but which are smaller, 
optimistically viewed as emerging because we look forward to 
the opportunities that we believe our new technologies will 
provide.
    Our company has a lead program focused on developing a drug 
for sickle cell disease. We have 20 employees, and we do not 
qualify for SBIR funding. And that is really, I think, a clear 
example of why the eligibility program or why the eligibility 
requirements need to be changed.
    Even more striking, though, when we opened the doors of our 
company, when we had four employees, we did not qualify as a 
small business for SBIR purposes. And that is because of our 
venture capital backing. So that is a critical issue, as far as 
I am concerned, that we really do need to address. This is 
particularly important in this economic climate, when everybody 
knows that there have been a lot of challenges to many sectors 
in the economy.
    In the case of biotechnology, we have seen significant 
reductions in the venture capital investments that are going to 
biotech companies. We see increasing numbers of public 
companies that are running out of cash, and we see a real push 
to focus our resources on our latest-stage, most-advanced 
programs, which really increases the importance of having SBIR 
funding for those earlier-stage programs which, as Dr. 
Goodnight mentioned, are the high-quality, high-risk, early-
stage scientific areas where we really could productively focus 
on some additional resources.
    We have three specific recommendations that we would like 
to make in terms of improving the SBIR program. The first is to 
really address the eligibility requirements with respect to 
venture capital ownership. Again giving you a specific example 
from our case, because we happen to have more than 50 percent 
venture ownership, it means that we do not qualify. And I think 
that that is a significant reason why we saw such a significant 
drop in applications, the 40 percent drop that Dr. Goodnight 
referenced in terms of SBIR applications to the NIH. My opinion 
is that that is significantly influenced by the fact that 
venture-backed companies cannot apply for those grants to the 
extent that the VCs own more than 50 percent of our companies.
    Remember, we are developing therapeutics, and particular 
companies developing therapeutics require lots of investment 
for long periods of time, so we can't do that without the 
backing of venture capitalists. By definition, we will have a 
lot of venture capital investment. And we can really count on 
the SBIR program if it is available to help us to fund the 
earlier-stage programs where we are doing even more cutting-
edge research. So it is critical for us to be able to access 
that.
    A second recommendation gets to this question of affiliated 
employees. And again to give you a specific example from our 
company, we have, as I said, 20 employees. One of my large 
venture investors invests in all kinds of other types of 
businesses that have nothing to do with biotechnology. So if 
they invest in a software company, for example, that has 100 
employees, those employees should not be counted in my 
eligibility for an SBIR grant. They have nothing to do with 
what I am doing. I have got nothing to do with what they are 
doing, and I really think we need to focus on employees of the 
company itself. So the affiliation rules really need to be 
clarified.
    And the third recommendation, which again supports some of 
the comments from the earlier panel is that we really do 
believe that agencies need to have flexibility in terms of how 
they implement their programs. Different scientific approaches 
are going to require different amounts of funding, different 
timing for the types of funding that would be helpful to their 
ventures. And so I really think as a third point to give more 
flexibility to the agencies in how they administer their own 
particular aspects of the program, I think, would be very 
productive.
    So as I said at the outset, I think this is a critical 
program. You are able to support early-stage important 
innovations. You are able to do it in small businesses and 
significantly effect employment generation in this country. I 
think it is a win-win for all parties, and I really thank you 
for your interest and for your support of this important 
program.
    Chairwoman Velazquez. Thank you, Ms. King.
    [The statement of Ms. King is included in the appendix at 
page 104.]
    Chairman Velazquez. Our next witness is Mr. John Stocker. 
He is the senior vice president of Federal Solutions for 
Lynntech, located in College Station, Texas. Lynntech is a 
research and technology development company with a 20-year 
history of successful innovation. Lynntech is a member of the 
Small Business Technology Council.
    Welcome.

 STATEMENT OF MR. JOHN STOCKER, SENIOR VICE PRESIDENT, FEDERAL 
       SOLUTIONS, LYNNTECH, INC., COLLEGE STATION, TEXAS

    Mr. Stocker. Thank you, Madam Chairwoman. And I appreciate 
the opportunity to appear before the committee this afternoon 
and would ask that my full statement be entered into the 
record.
    Chairwoman Velazquez. Without objection.
    Mr. Stocker. Madam Chairwoman Velazquez and members of the 
committee, it is with great pleasure that I appear before you 
today to offer Lynntech's views on the need to reform the Small 
Business Innovation Research program. And I should add that I 
am speaking on behalf of Lynntech and not on behalf of the 
Small Business Technology Council.
    It is true that we are headquartered in College Station, 
Texas, but some of us have small farms in Spencer County, 
Indiana. And we are the largest SBIR contractor in the State 
and one of the largest in the country. So it is fair to say 
that this program is an important one, and it has been 
beneficial in the past to the company.
    The company was founded back in 1989. Our primary objective 
is to intensify our efforts to transition technologies into the 
marketplace. Our technologies are concentrated in the areas of 
the electrochemical synthesis, energy storage and conversion, 
chemical biological defense systems and environmental 
remediation. About two-thirds of our contracts are with the 
Department of Defense, although we have performed under 
contracts to a number of the agencies that have SBIR dollars; 
as a result, our interest in this debate regarding the reform 
legislation is quite high, as our efforts to transition 
technologies will be driven by the framework of future reforms.
    In sum and with all due respect to the participants in the 
past, we think that the debate regarding last year's bill as 
passed by the House is focused on the wrong set of issues. We 
believe that ownership of SBIR companies by venture capital 
firms should not be guiding our discussions regarding reform of 
the program. We should be looking forward to all possible 
resources, both public and private, to advance technologies 
into the future. The only ground rule should be that this is a 
small business program and should be closed to activities of 
large corporations.
    We believe that the need really is on technology 
transition. There are a number of great technologies out there 
that have never made it to the marketplace, in part because the 
technology readiness level of those technologies is 
insufficient to attract the attention of prime contractors or 
even acquisition managers in the Defense Department because 
they are not sufficiently advanced. And without having a 
clearly defined program to move from Phase II into the 
marketplace, it will be difficult for those transition efforts 
to be successful.
    Currently, companies like Lynntech have to rely on a fairly 
ad hoc system to approach acquisition managers and to identify 
technologies that could be of interest and necessary to 
downstream weapons systems that they are procuring for the 
needs of our warfighters. And as a result, we find that it is 
very, very difficult to move beyond Phase II into a Phase III-
type effort in large part because there is no Phase III funding 
available to the acquisition managers to take advantage of our 
technologies.
    For example, we have developed a technology for producing 
hydrogen peroxide in the field. Hydrogen peroxide is an 
important element in cleaning spaces and equipment that have 
been hit with biological agents. Right now the ability of the 
military to deliver hydrogen peroxide is through air transport 
and then having to store the hydrogen peroxide on site in the 
deployment areas.
    Hydrogen peroxide is an extremely volatile material and is 
dangerous to transport in cargo planes. As a result, we have a 
system of relying only on air, water and electricity that would 
provide them the hydrogen peroxide as needed in the field and 
would reduce the transportation costs and the logistics burden 
of providing that hydrogen peroxide in its current form.
    However, because of the long process which defense 
budgeting goes through, it is difficult for our customer--and 
we have a customer clearly identified in the Defense 
Department--to reach out and take advantage of our technology 
because we have landed in the middle of the budget cycle. And 
so for them to look at us, they would need to put us into line 
for funding 2 years from now, in which case, we would go 2 
years without developing the technology any further, which 
means 2 more years in which our warfighters don't have access 
to our system.
    So we believe that the most serious question is our ability 
to continue the development beyond the early-stage capabilities 
that you will get at the end of Phase II.
    We have a number of issues that we have discussed with 
various players in this arena. We think that there is a 
possibility of having a compromise to go forward, arranging 
across the board with whether we are talking about Phase I's, 
Phase II's, whether we are talking about the level of 
allocation to SBIR programs, the size of contract awards, et 
cetera.
    We believe a compromise is not only feasible, but is 
possible within this environment; and we are here and pledge 
our assistance to you and the committee, Madam Chairwoman, to 
seek those promise compromises. Thank you.
    Chairwoman Velazquez. Thank you, Mr. Stocker.
    [The statement of Mr. Stocker is included in the appendix 
at page 109.]Chairwoman Velazquez. -- and our next--I will 
recognize Mr. Luetkemeyer for the purpose of introducing our 
next witness.
    Mr. Luetkemeyer. Thank you, Madam Chairman.
    Mr. Rosellini is the President and CEO of MicroTransponder 
in Dallas, Texas. MicroTransponder is a privately held medical 
device company. The company is developing a wireless 
neurostimulation system for the treatment of chronic pain.
    Mr. Rosellini is here to testify on behalf of the Advanced 
Medical Technology Association. Advanced Med advocates for a 
legal regulatory and economic environment that advances global 
health care.
    Welcome, Mr. Rosellini.

   STATEMENT OF MR. WILL ROSELLINI, CHIEF EXECUTIVE OFFICER, 
  MICROTRANSPONDER INC., DALLAS, TEXAS, ON BEHALF OF ADVANCED 
                 MEDICAL TECHNOLOGY ASSOCIATION

    Mr. Rosellini. Good afternoon. I am honored to appear 
before the Small Business Committee to share an example of how 
the SBIR program has made it possible for MicroTransponder to 
not only develop treatments for chronic pain, but a variety of 
other neurological disorders, including tinnitus, traumatic 
brain injury, post-traumatic stress, autism and motor 
disorders. Taken together, these conditions affect over 50 
million people in the U.S. and represent an economic burden of 
over $100 billion annually.
    Utilizing SBIR funding, in the last 2 weeks Drs. Michael 
Kilgard and Navzer Engineer have recently collected preliminary 
data that suggest our devices may soon be able to reverse the 
cause of a neurological disease. As a neuroscientist, every 
time I read that I get goosebumps. This disease severely 
affects 12 million people in the United States, 500,000 
veterans, 93,000 of whom have recently returned from Iraq.
    This disease is tinnitus. Tinnitus is a debilitating 
constant ringing sensation that originates in the brain itself. 
Tinnitus is caused by hearing loss often from trauma related to 
explosion. The VA alone has projected to spend $1 billion 
annually in 2011 in tinnitus disability compensation. We expect 
to move our promising treatment for tinnitus into clinical 
testing in humans within 2 years.
    We treat tinnitus by implanting a small device near a nerve 
in the side of the neck. The device emits small electric pulses 
near the nerve, which sends a signal up to the brain to produce 
chemicals that allow the brain to reprogram itself. When a 
tinnitus patient receives this device therapy while listening 
to a series of auditory tones, the brain is able to reprogram 
and eliminate the painful ringing sensation of tinnitus.
    If successful in humans, our technology will be the first 
time a neurological disease has been reversed using medical 
devices. It is a very exciting time for us at MicroTransponder 
and it would not have been possible without the SBIR program.
    MicroTransponder Incorporated was formed to commercialize 
Dr. Lawrence Cauller's innovations related to a wireless 
medical device which interfaces with the nervous system. As a 
former Army medic, Dr. Cauller had been inspired to use the 
wireless devices to communicate with robotic prosthetic limbs 
to replace lost limbs in combat.
    Now, I have an M.B.A., J.D., Masters of Neuroscience, 
Masters of Accounting, Masters of Computational Biology, 
Masters of Regulatory Science and an entrepreneurial track 
record in the medical field. But apparently raising funds for 
robotic prosthetic limbs and devices that can reprogram the 
brain is not a straight step to profitability. Instead we 
turned to the SBIR program.
    In 2007 we received our first Phase I grant award from 
Joseph Pancrazio, Program Director of the extramural research 
program at NIH/NINDS to convert this into a clinical product. 
This award allowed us to obtain important data to show that we 
could power our devices wirelessly. With this feasibility 
established, we began a search for ways to use this technology 
to deliver electricity to peripheral nerves to treat chronic 
pain.
    At roughly the same time, a colleague and friend of Dr. 
Cauller, Dr. Kilgard, told me about his idea to use the device 
to stimulate nerves to selectively alter brain function in a 
predictable and potentially therapeutic manner. 
MicroTransponder and UTD submitted a research plan to the SBIR 
program; and with these funds, Dr. Kilgard's team has turned 
this idea into a potentially ground-breaking new therapy for 
tinnitus. We expect this therapy to be able to be used for 
motor deficit, post-traumatic stress, autism and a variety of 
other neurological conditions.
    These SBIR grants serve a number of important roles in 
getting high-risk, high-reward companies off the ground. First, 
they enable the companies to inexpensively test the feasibility 
of their technology. Second, when a company is able to show 
feasibility and garner additional funds, this independent 
scientific validation of the company's approach opens the door 
for venture capital and other private fundraising.
    After receiving our first funds from the NIH, we were able 
to obtain additional funds from the Texas Emerging Technology 
Fund. This fund awarded us a $1.4 million award. The combined 
funding has allowed us to obtain "proof of principle" 
laboratory data and finalize our prototype device. We are now 
preparing to enter clinical trials at the end of the year for 
treating chronic pain as well as possibly reversing tinnitus.
    This progress could never have been made without SBIR 
funding. Without the SBIR program, many high-risk, high-reward 
technologies would not have been developed and the public would 
have fewer new treatments for serious illnesses.
    Chairwoman Velazquez and Ranking Member Graves, I thank you 
for your leadership and the reauthorization of the program and 
giving the SBA a very hard time about their lack of commitment 
in this area. I appreciate the opportunity to share with you 
how the SBIR program has been instrumental in allowing 
MicroTransponder to move forward in developing treatments and 
cures for a number of unmet needs.
    I would be happy to answer any questions you may have.
    Chairwoman Velazquez. Thank you.
    [The statement of Mr. Rosellini is included in the appendix 
at page 115.]
    Chairwoman Velazquez. If I may, Mr. Rosellini, I would like 
to address my first question to you.
    We have heard how long it takes in terms of money and time 
required to bring a new medical device to market. And most 
medical device firms need investors or partners to 
commercialize promising research, so in the current economic 
climate it is extremely difficult to raise capital to 
transition research from the lab to the marketplace.
    What effect is this lack of venture capital having on the 
rate of innovation in the medical device industry?
    Mr. Rosellini. My comment on that would be that venture 
capitalists are now espousing focus, focus, focus. So our 
device, if it works, is going to be worth hundreds of millions 
of dollars to a strategic partner. So the venture capitalists 
would approach our company and say, the only thing you should 
be allowed to develop and work on and spend money on is a 
chronic pain indication, meaning only use your device for that.
    What we have done is we have mobilized other 
neuroscientists to use our device in different ways. And the 
way we motivate them is to say, Hey, go after these SBIR funds 
so we can come up with further innovation in a nondilutive way 
for other disease indications. And we have done that with four 
different disease indications. If we didn't have that 
opportunity, all of these innovations would have stopped.
    Chairwoman Velazquez. But once you develop your device and 
you use the money from Phase I and you want to take that device 
to commercialize it in the market, you will need resources to 
go to that other phase.
    What type of resources do you think will be available for 
you to be able to move that product from the lab into the 
marketplace?
    Mr. Rosellini. Our approach for the first indication, we 
think that we could raise venture capital. So for chronic pain, 
we think we could raise that money. However, we will not be 
able to develop any of the other indications without SBIR 
funds, meaning it would stop. So we need both to be able to 
develop the program that we would like to develop.
    Chairwoman Velazquez. Okay.
    Mr. Stocker, much of the debate on modernizing the SBIR 
program has revolved around the issue of venture capital and 
the role that it should play in the program. So what are your 
thoughts on this? And is it the most important issue that we 
here in Congress should be focused on, or are there other 
pressing matters that we need to consider?
    Mr. Stocker. Madam Chairwoman, I think the most pressing 
issue is this whole issue of transitioning these technologies 
into the marketplace.
    So my colleague here on the right is describing some of the 
difficulties they will have in attempting to move their device 
into the marketplace. There is no clear path. Perhaps there is 
not only a single path, but there is no clear path within the 
agencies right now that would allow you to develop your device 
to the point where you could effectively present it to a 
private investment group of any kind and have them 
wholeheartedly enter into an arrangement with you to go ahead 
and develop that device to go into the marketplace.
    So there needs to continue to be a combination of public 
and private resources to make that happen.
    The affiliation rules that were devised for SBA programs in 
the past--and I don't need to tell you this--was largely 
directed at ensuring the set-aside programs were not invaded by 
large corporations. Those affiliation rules don't necessarily 
apply in an era when there are multiple resources out there and 
you cannot equate a private financial institution of any kind 
with a major corporation that is looking to get access to set-
aside programs.
    So we need to be able to rely on both. But our major 
problem is that there is not enough money in the base 
contracts. Those award levels need to be increased. The 
allocations need to be increased so that we can underwrite more 
programs with larger contract awards.
    And then, finally, there need to be specific appropriations 
for Phase III development that would then allow you to move 
beyond the technology readiness levels that we are able to 
achieve at the end of Phase II. The most common complaint I 
hear from the technical monitors that we deal with in the 
Defense Department is that we do not have access to enough 
money to really develop our ideas.
    Chairwoman Velazquez. Thank you.
    Ms. King, in the biotech industry, investors often tie 
their funds to the development of the company's lead therapy. 
As a result, companies can be blocked from spending the funds 
from investors on other applications.
    If small, venture-backed biotechnology companies could 
participate in SBIR, would more research be conducted on these 
secondary applications?
    Ms. King. Yes, absolutely. And I have a specific example 
from our company.
    We have a program, very early stage. We think it is very 
exciting where we have some--a family of compounds that we 
think could be useful in a number of infectious diseases, 
including HIV and tuberculosis. We cannot work on that program 
because we have to focus on our lead program.
    Now, we think our lead program is exciting and has a lot of 
value too. And it is on the basis of that program that we have 
attracted the venture capital investment. But I would love to 
be able to support my earlier-stage programs with SBIR funding.
    And, again--I mean, to open that program to allow companies 
like ours to apply of course doesn't guarantee that we are 
going to get the awards. But I would be happy to let our 
science be judged on the basis of the quality of our data. Let 
the NIH decide. Open up the competition. Let them choose on the 
basis of the quality of the science and on that basis make the 
awards, not on the basis of who owns what percent of our 
company.
    But you are exactly correct. If we were able to access that 
funding source, then we and other companies would be able to 
invest in more early-stage, very promising research than we can 
now.
    Chairwoman Velazquez. Thank you.
    Mr. Green, I think you were here when the first panel was 
testifying.
    Mr. Green. Yes.
    Chairwoman Velazquez. And it caught my attention, the 
statement made by the rep from DOE, when he said that the VC 
industry is not interested in the DOE-type of industries.
    Mr. Green. It caught my attention as well. The truth is, it 
is just the opposite of that.
    In fact, I participated in a panel in front of 
approximately 200 entrepreneurs yesterday morning in Silicon 
Valley where the entire focus and the highest amount of 
interest was about how to get in front of DOE in order to 
access dollars.
    Now, this was beyond the SBIR program, but the interest 
levels in participation, whether it be in the $2 billion that 
is looking at developing advanced battery technology or its 
SBIR programs is truly palpable right now. It is, in fact, as 
least as great as coming up to Sand Hill Road in Menlo Park and 
seeking venture capital dollars.
    Chairwoman Velazquez. Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman. I don't have 
a whole lot of questions. I just want to make a couple of 
comments.
    I appreciate all of you being here today from the 
standpoint that you represent the entrepreneurial spirit and 
what makes this country great, in my mind. I am excited to see 
you there, and I see the excitement and patience in your voice 
as you testify for each individual company and the things that 
you do. The only question I have is for Mr. Green.
    You made a comment that--it was kind of interesting and 
intriguing. You said venture capital is used to build and not 
do research. I think really--if that is accurate, it really 
tells us where the SBIR program can be really instrumental in 
helping get that first step taken so that down the road the 
venture capitalists can come in and be able to have funds 
accessible to folks to continue to build their business. I 
appreciate that point of view.
    And if you would like to elaborate on it a little bit more, 
I would appreciate it.
    Mr. Green. To drill in on it, there is the conception that 
venture capitalists will take a significant number of their 
projects directly out of university labs. In the case of my 
firm, about 40 percent of what we fund comes directly out of 
university labs. However, there is a significant portion that 
needs just a little more of a nudge to get to that 
commercialization stage. They are not quite there, not quite 
ready.
    The examples that are in Phase I and Phase II grants is 
that necessary element to push it over the edge. It is very 
much akin to what is called "seed funding" in Silicon Valley, 
where you will put in a small amount of money in order to get 
it to that commercialization stage. So this performs an 
absolutely vital function to get it to a point where we can 
then build a business around that technology.
    Mr. Luetkemeyer. Very good.
    With that, I will yield back, Madam Chairman.
    Chairwoman Velazquez. Thank you.
    Mr. Thompson.
    Mr. Thompson. Thank you, Madam Chairwoman.
    Mr. Green, picking back up on venture capital and the SBIR 
process, obviously a lot of discussion there. My question is, 
are there other ways to structure venture capital investment 
contracts as to not include ownership and, you know, like a 
greater share of profits or a sliding scale of ownership that 
corresponds to success?
    Mr. Green. Yeah. It is an excellent question.
    The way the venture capital industry has developed over the 
last 40 to 50 years has been, we raise our money from 
university endowments and private foundations under charter 
documents that require us to take an equity interest in those 
enterprises. That is the way the model, that is the way the 
industry has developed.
    So, for example, even a slight change like taking an 
interest in a limited partnership agreement, as opposed to a 
regular seed corporation, is something that we can't do, in 
general because we are constricted to taking that equity 
interest and, hopefully, appreciation of that interest as the 
enterprise grows.
    So it would take a whole sea change in the entire VC 
industry in order to do it in some other manner.
    Mr. Thompson. Do you see any movements in that direction at 
all?
    Mr. Green. I have not.
    Mr. Thompson. Okay. Thank you.
    Mr. Stocker, in your testimony you mentioned that we should 
focus on ensuring that large corporations should not directly 
benefit from a small business program. I certainly agree with 
that.
    How would you suggest that we ensure that?
    Mr. Stocker. In terms of the rules that have been discussed 
in the past and some subsequent discussion that we have had 
with committee staff with regard to how you would go forward, 
we think there should be a percentage limitation on ownership 
of any SBIR company by a large corporation. And we think that 
that is workable going forward.
    Mr. Thompson. Many of the recommendations that you 
advocated were included in last year's reauthorization bill. 
You know, what would you like to not see in this year's bill?
    Mr. Stocker. Well, I am not sure that the allocation 
increase that we are advocating was included in last year's 
bill for a lot of different reasons. We would like to see that 
issue addressed at least by the time the bill comes out of 
conference.
    I think, secondly, we don't think there should be a 
complete elimination of Phase I. Phase I is a very useful 
exercise in testing whether concepts can be made to work. This 
notion of having privately financed Phase I's and then being 
asked to enter into Phase II competition, I think that is an 
issue that we can look at, but I don't want to see us abandon 
Phase I.
    Phase I is--the incidence of failure is very high in Phase 
I. But that is a useful result because it tells you you 
shouldn't be wasting your time in that particular approach. So 
we think in that context the Phase I's need to be kept in the 
program.
    We would like to see more policy direction in regard to the 
commercialization exercise. I think the agencies need to be 
reporting back to this committee on a more frequent basis in 
regard to how successful the transition efforts are. I would 
like to see the SBA's data, for example, the 50 percent of 
Phase II's do become commercialized. That was a little 
surprising to me.
    I would like to see the Defense Department--as good as we 
have seen progress made within DOD--and, for this, I would 
single out the Navy; the Navy does a fantastic job in looking 
at technology transition from an early stage. The other 
services probably need to do some work in catching up to where 
the Navy is currently. So in that context, I think that would 
be important for the committee to include in any bill as a 
policy directive in regard to this whole technology transition 
effort.
    We would also like to see an appropriation dedicated to 
covering management costs. You have heard the representatives 
of the first panel address that. I have actually been in 
meetings with people saying they didn't want to review SBIR 
proposals because they didn't have time to do it. And people 
saw it as a burden on their already busy day of having to 
undertake an evaluation of SBIR proposals.
    So I think if there are additional management resources 
provided to the agencies, I think that would help them do a 
better job of being able to articulate topics that make sense 
to the acquisition people, to be able to do the proper 
valuation of the proposals and to manage the program as it goes 
through execution.
    Mr. Thompson. Very good. Thank you.
    Thank you, Madam Chairwoman.
    Chairwoman Velazquez. An argument often used against 
venture capital involvement in the SBIR program is that small 
firms will lose day-to-day operational control of their 
companies. Can you discuss this subject and tell the committee 
what impact a venture capital investment would have on the 
management of a company, on Lynntech for example, Mr. Stocker.
    Mr. Stocker. One of the realities of private capital coming 
into a company is that those people who are writing the checks 
usually like to know what the company is doing. So I would not 
be surprised to see VC firms require a board representation and 
some oversight of day-to-day responsibilities.
    However, I would also be surprised that VC firms would want 
to run a company on a day-to-day investment because obviously, 
one of the reasons they are investing in that firm is they are 
impressed by the quality of the management team, and they are 
impressed by the quality of the work that firm is doing.
    To be concerned about venture capital or investment bank 
participation in any firm, be it small or large, I think 
ignores the role of private capital in American enterprise. So 
I am not too concerned about this whole question of operational 
control.
    Chairwoman Velazquez. Thank you.
    For the last 18 years, the SBIR set-aside has not been 
increased from 2.5 percent. Could each one of you explain your 
views on whether or not this level should be raised, and if so, 
how high it should be increased?
    Mr. Stocker, you already answered my question.
    Mr. Green?
    Mr. Green. As I think about it, I do equate the SBIR 
program in very many aspects to what a seed financing would be 
like. And there is a bit of a cottage industry that exists in 
Silicon Valley around seed financings.
    I look at that number as being somewhere around $1.2 
million to $1.5 million in today's world to get yourself in 
general to a point where you can figure out whether or not you 
have a commercializable business to fund around.
    Chairwoman Velazquez. Ms. King?
    Ms. King. I would agree with that as a general rule. I 
think we are in an environment where we want to adopt economic 
stimulatory policies for the economy, broadly speaking.
    We need to focus the investments that we make in areas 
where we are going to increase employment and support 
innovation. So I think, to the extent you are looking at trade 
offs between let's say increasing an SBA program versus other 
policies that you are looking at in your role as Members of 
Congress, I think that this is one where you will get a lot of 
benefit for the investment dollars that you put into it.
    I don't have a specific number in mind in terms of how much 
I would like to see the program increased. But I would say that 
I believe added dollars in this program will have an economic 
stimulatory effect. I believe they will increase employment, 
and I also believe they will support innovation which, over 
time, will lead to other further economic benefits.
    I wanted to comment briefly on the previous question about 
operational control of VCs. We need to look at the venture 
capital investors as partners in the enterprise with 
management. I think, in a good situation, that is how companies 
work.
    I agree with what was said earlier that most venture 
capital investors in my experience don't want to run the 
company on a day-to-day basis. What they would really like to 
do is make the investment, get the regular reports of the 
progress, and eventually reap the benefit of the risk that they 
took in making the investment.
    They can provide counsel. In our case, I believe our 
investors give us a lot of benefit by virtue of their 
experience and their connections and help. I think we need to 
view them as partners in the enterprise, not somehow as 
adversaries in the enterprise.
    Mr. Rosellini. My comment on that is, 30 years ago, you 
called yourself a chemist or a biologist or a botanist. Today, 
our scientists like to be referred to as neuroengineers. So the 
amount of translational research and expertise that goes into a 
product today is much different than it was 30 years.
    The billions of dollars of research for consumer products 
like TVs and cell phones, we are taking these really 
interesting parts and putting them into the body. Well, that is 
a very difficult team to keep together. You have an engineer, 
an electrical engineer, software engineer and biologist, 
neuroscientist. So, for us, a movement away from the 
traditional one scientist working in a laboratory by himself 
into a way for a business to organize 5 to 10 different people 
that have to be experts to translate this medicine, so I think 
it should be increased.
    Chairwoman Velazquez. Any other questions?
    Thank you again.
    We will continue to assess and to work and to discuss with 
the SBIR community the best way to proceed regarding the 
reauthorization and modernization of the SBIR program. So thank 
you again for participating in this hearing.
    I ask unanimous consent that members may have 5 days to 
submit a statement and supporting materials for the record. 
Without objection, so ordered.
    This hearing is now adjourned.
    [Whereupon, at 3:13 p.m., the committee was adjourned.]

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