[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
COMMERCIALIZING ON INNOVATION: REAUTHORIZING THE SMALL BUSINESS
INNOVATION RESEARCH AND SMALL BUSINESS TECHNOLOGY TRANSFER PROGRAM
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 2, 2016
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-047
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Emily Murphy, Deputy Staff Director for Policy
Jan Oliver, Deputy Staff Director for Operation
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Steve Chabot................................................ 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Mr. John Williams, Director, Innovation and Technology, Office of
Investment and Innovation, United States Small Business
Administration, Washington, DC................................. 4
Barry Johnson, Ph.D., Division Director, Industrial Innovation &
Partnerships, National Science Foundation, Arlington, VA....... 6
Matthew Portnoy, Ph.D., Overall HHS SBIR/STTR Program Manager/NIH
Program Manager, National Institutes of Health, Bethesda, MD... 8
Mr. Robert Smith, Director, SBIR/STTR Programs, Office of Naval
Research, Arlington, VA........................................ 9
APPENDIX
Prepared Statements:
Mr. John Williams, Director, Innovation and Technology,
Office of Investment and Innovation, United States Small
Business Administration, Washington, DC.................... 27
Barry Johnson, Ph.D., Division Director, Industrial
Innovation & Partnerships, National Science Foundation,
Arlington, VA.............................................. 31
Matthew Portnoy, Ph.D., Overall HHS SBIR/STTR Program
Manager/NIH Program Manager, National Institutes of Health,
Bethesda, MD............................................... 34
Mr. Robert Smith, Director, SBIR/STTR Programs, Office of
Naval Research, Arlington, VA.............................. 40
Question and Answer for the Record:
Question from Hon. Steve Chabot to Mr. John Williams and
Answer from Mr. John Williams.............................. 43
Additional Material for the Record:
None.
COMMERCIALIZING ON INNOVATION: REAUTHORIZING THE SMALL BUSINESS
INNOVATION RESEARCH AND SMALL BUSINESS TRANSFER PROGRAMS
----------
WEDNESDAY, MARCH 2, 2016
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 11:00 a.m., in Room
2360, Rayburn House Office Building. Hon. Steve Chabot
[chairman of the Committee] presiding.
Present: Representatives Chabot, Luetkemeyer, Hanna,
Gibson, Radewagen, Knight, Curbelo, Hardy, Kelly, Velazquez,
Chu, Meng, Lawrence, and Moulton.
Chairman CHABOT. Good morning. The Committee will come to
order.
I want to thank you all for being here today. We are
holding the first of two hearings our Committee will conduct
this month concerning the reauthorization of the Small Business
Innovation Research and Small Business Technology Transfer
programs, or SBIR and STTR. Innovation is the energy that
drives our economy. Technological breakthroughs and the
entrepreneurship it spurs build our economy by finding state-
of-the-art solutions to difficult problems and marketing those
new products. This correlation is particularly important in the
small business arena. Small businesses tend to be more nimble,
responding to market changes more rapidly than their bigger
counterparts, and they drive the innovation sector and make us
more agile in the global economy. It is that recognition of
small firms' ingenuity that led Congress to establish the SBIR
program back in 1982 and the STTR program in 1992. These
programs set aside a portion of Federal research dollars for
small businesses. Spanning 11 participating agencies, such as
the Department of Defense, National Institutes of Health, and
the National Science Foundation, the development dollars set
aside for small businesses are critical for both the small
business companies that use the grants and the Federal agencies
that seek innovation to the problems that they encounter.
Whether it is a new software system for tracking contract
payments, a new medical device to help with cancer treatment,
or new piece of technology that saves lives on the battlefield,
the SBIR and STTR programs have consistently delivered results
across all agencies. In this era of globalization, making it
easier for small businesses to develop and commercialize new
innovative products is essential for America's competitiveness
and national security. That is why programs like SBIR and STTR
are so important.
Small innovators have always been on the cutting edge of
science and technology. These are the entrepreneurs who have
the kind of mentality to take big risks in search of big
rewards, but the next big thing does not just materialize. It
happens with a lot of sweat equity and late nights. Ideas
matter but executing those ideas is what is most important.
That is where the SBIR and STTR programs come in. The very
competitive and phased system of these programs allows for a
relatively small initial Federal investment to help
entrepreneurs cultivate a concept. Often being the first place
prospective entrepreneurs go to find seed funding, the SBIR and
STTR programs allow initial testing and further development of
that idea. If it appears the idea has merit, the company can
compete for a much larger award to develop that idea further
and work towards making it a commercial success.
These programs were last authorized in 2011. In order to
give entrepreneurs stability and predictability, we are getting
a jumpstart on reauthorizing them before next year's deadline.
Today, we have a very distinguished panel of government
witnesses who are intimately involved in their agency's SBIR
and STTR programs. We look forward to hearing about your
programs and your suggestions of how we can make these good
programs better.
Again, I want to thank all of you for being here and I
would now like to yield to the ranking member, Ms. Velazquez,
for her opening statement.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Since their establishment in 1983, the SBIR and STTR
programs have helped launch tens of thousands of successful
research projects. During this time, they have awarded nearly
$40 billion, making them a critical source of funding for small
innovative firms. As a result of these programs, breakthroughs
have been made in a wide range of sectors, from agriculture to
energy to healthcare. In turn, these discoveries have generated
economic growth and the job opportunities that come with it.
In 2011, Congress enacted a reauthorization of these
programs. One of the primary outcomes of the legislation was a
greater focus on commercialization. Such a focus is necessary
if we are to ensure that the programs remain a catalyst for not
just innovation but also the economic empowerment and job
creation that are associated with these scientific advances.
During today's hearing, I am especially interested in
understanding how the reauthorizations' various
commercialization initiatives have played out and if they are,
in fact, resulting in more successful endeavors.
In a similar context, the legislation required agencies to
track those opportunities that continually win Phase I awards
without progressing to Phase II. I look forward to reviewing
this data.
Among the most notable changes were increases in
permissible award sizes. In theory, this should provide
agencies with more flexibility to make larger awards to the
most promising innovations. However, I am concerned as we have
seen a decline in the overall number of awards. Understanding
the tradeoffs here are important and we need to know what is
preferred. Fewer, larger size awards or more awards of lower
value.
There are also two perpetual issues that continue to raise
concerns. One is that the programs remain concentrated in just
a few states. Altogether, the top 10 award states receive over
half of the number of awards and half of the dollars. This
results in programs that are largely serving just a handful of
states while others receive very little benefit from it at all.
This is a perennial issue that continues to warrant this
committee's attention.
Similarly, concerns exist that the participation of women-
owned and minority-owned firms has been declining. Just like
with geography, when it comes to demographics, it is important
that SBIR and STTR are serving all entrepreneurs, including
women and minorities. This is especially important as reaching
this group is the only stated objective of the program that is
not currently being met.
Finally, I know there is much discussion about the duration
of the authorization period for these programs. In the past,
Congress's inability to pass a bill created great stress on the
agencies and among small businesses. I understand and recognize
this legitimate concern; however, SBIR and STTR are statutory
programs and rely on Congress to make changes. As a result, it
is crucial to have regular legislative oversight of the
programs. This means having an authorization period, such as
the current sixth year, which permits Congress to implement
updates that reflect the evolving nature of technology and the
economy, while still giving participants certainty of all the
programs.
During today's hearing, I hope that we shed light on this
issue so that we can begin to evaluate how the changes included
in the 2011 reauthorization are performing. The reauthorization
window is upon us, and it is critical that we know what is and
is not working. We know the value that the SBIR and STTR
programs have in fostering innovation. While they continue to
do so, we must oversee these programs regularly. And for that
reason, I thank all the witnesses for being here and the
chairman for calling this hearing. I thank you, and I yield
back the balance of my time.
Chairman CHABOT. Thank you very much. And I would now like
to explain briefly the timing system. We operate under the 5-
minute rule. I am sure you are familiar with it. It is kind of
like a traffic light on your desk there. Green light means go.
You can talk. You will get a yellow light warning there to let
you know you have got about a minute to wrap up, and then the
red light will come on and you are supposed to stop. Most
people do but some people go on. If you would not mind wrapping
up close to that we would appreciate it. We will give you a
little leeway.
I would now like to introduce our very distinguished panel
here this morning. I will begin with our first witness, John
Williams, who is the Director of Innovation and Technology for
the Office of Investment and Innovation at the SBA. Mr.
Williams's primary responsibility is to oversee Federal policy
implementation and programmatic oversight of the Small Business
Innovation Research (SBIR) and Small Business Technology
Transfer (STTR) programs across all 11 participating agencies.
Prior to joining the SBA in December of 2014, Mr. Williams
served as the Director of the Navy SBIR and STTR programs.
Through his leadership, the Navy led the way in supporting the
acquisition and transition of SBIR and STTR seeded
technologies, awarding more Phase III contracts than the rest
of the DOD combined.
The following witness will be Dr. Barry Johnson, who is
Division Director of Industrial Innovation and Partnerships
(IIP) at the National Science Foundation. In this role, Dr.
Johnson fosters partnerships in advanced technology innovation
and invests in science and engineering research across all
disciplines that have the potential for high impact in meeting
national and societal needs. He came to the National Science
Foundation following his tenure as a Senior Associate Dean at
the University of Virginia where he was also the L.A. Lacey
Distinguished Professor of Engineering.
And after that we will have Dr. Matthew Portnoy, the
Department of Health and Human Services and the National
Institutes of Health's SBIR and STTR Program Coordinator. Dr.
Portnoy and his staff provide scientific program management and
oversight, support conferences and scientific meetings, ensure
that NIH extramural staff are trained to meet the demands of
their job, and communicates funding opportunities and critical
information concerning NIH's programs, policies, and procedures
to the biomedical research and training community. We welcome
you here as well.
Finally, we will hear from Mr. Bob Smith, who is Director
of the SBIR and STTR programs for the Department of the Navy.
He is charged with assisting small businesses in getting their
technology fully developed, tested, and inserted into the
products and services used by our naval warfighters.
Previously, he was Director of Disruptive Technologies for the
Office of Naval Research and Program Manager for the Navy's
Rapid Innovation Fund, which supports small business concerns
rapidly inserting their technology and acquisition programs of
record. A retired Marine Corps officer with over 3,000 flight
hours in various military aircraft, he was the 2013 recipient
of the Department of the Navy Greta B. Stinson Advocacy Award,
one of the annual Navy Acquisition Excellence awards.
As you can see, we have a very distinguished panel out here
this morning by hearing their bios here. So thank you very much
for being here. And Mr. Williams, we will begin with you. You
have 5 minutes.
STATEMENTS OF JOHN WILLIAMS, DIRECTOR, INNOVATION AND
TECHNOLOGY, OFFICE OF INVESTMENT AND INNOVATION, UNITED STATES
SMALL BUSINESS ADMINISTRATION; BARRY JOHNSON, PH.D., DIVISION
DIRECTOR, INDUSTRIAL INNOVATION AND PARTNERSHIPS, NATIONAL
SCIENCE FOUNDATION; MATTHEW PORTNOY, PH.D., OVERALL HHS SBIR/
STTR PROGRAM MANAGER, NATIONAL INSTITUTES OF HEALTH; ROBERT
SMITH, DIRECTOR, SBIR/STTR PROGRAMS, OFFICE OF NAVAL RESEARCH
STATEMENT OF JOHN WILLIAMS
Mr. WILLIAMS. Chairman Chabot, Ranking Member Velazquez,
and distinguished members of the Committee, thank you for
inviting me here today to discuss the Small Business Innovation
Research and Small Business Technology Transfer Programs,
affectionately known as America's Seed Fund. Last month, SBA
Administrator Marie Contreras-Sweet discussed the state of
entrepreneurship at NASDAQ Headquarters in Times Square. This
unprecedented opportunity gave SBA a wonderful platform to
explain the importance of small business on the American
economy. The administrator highlighted the great value of the
SBIR program and how it harnesses American ingenuity to solve
big issues. The SBIR program drives innovation in areas ranging
from national security to public health, to food and space
exploration.
In the financial tech capital of the world, SBIR was
recognized as the institution which creates and provides
opportunity through SBIR seed funding to tens of thousands of
high-tech firms, and NASDAQ is the proper place to begin the
discussion of SBIR because it represents the ultimate aims of
the program--growing innovation, job growth, and business
growth.
Today we are here going to speak a lot about oversight,
reporting and compliance, but we must not miss the point that
the return on investment from SBIR is truly astounding. The
combined market caps of just two SBIR firms, Qualcomm and
Biogen is $120 billion, triple that of what American taxpayers
have invested in the program over the lifetime. Our next
generation of companies with SBIR funding are developing game-
changing technologies, like Mango Materials, headed by a female
Ph.D. out of Stanford, a company tackling waste reduction
through a novel process of creating truly biodegradable
plastics from methane waste. Made in Space, a company
pioneering the use of 3D printing on the international space
station to support extended space exploration.
SBA works very closely with the agency's program managers
and external stakeholders to ensure that the intent of Congress
is carried out in the operations of the program. It is critical
to remember that although there is one SBIR program policy
directive issued by SBA, it guides programs at 11 different
agencies with varying missions, directives, and goals, as well
as their established, yet different models and methods for
executing the programs.
Thanks to this Committee, the program was reauthorized in
2011, and since reauthorization, SBA has successfully issued
five major interagency policy Committee reports on outreach,
commercialization, award-size flexibility, evaluation
frameworks, and the SBIR.gov public and government databases.
We have implemented with agency support over 60 legislative
changes directed by that reauthorization. We recommended and
built out our new SBIR.gov business intelligence platform. We
coordinated and led a highly successful outreach campaign,
hitting 22 States across the country in 2015 through our SBIR
road tours and regional events, and we have accomplished a
great deal with a limited budget but there is more work to be
done. The Committee asked us to speak on the potential
improvements to boost commercialization, improve data
collection and reporting, while limiting the paperwork burden.
I have some summary thoughts on these. Commercialization
was improved by the 2011 reauthorization but more definitely
can be done. Firms are severely limited in using SBIR funds to
support activities that help commercialize the firm's products
and services, like market assessment, patents, and scale up.
Agencies are still struggling to report Phase III award
activity and establishing goals and incentives to increase
Phase III activity within their agency. And we need to look at
other ways agencies, especially DOD, to make more funds
available for the needed test and evaluation or technology
maturation, which moves the technology from a Phase II to a
Phase III.
On data collection, we are much better off than we were in
2011. SBA and the agencies have all worked hard to implement
many new data fields that Congress requested us to collect. I
strongly encourage you all to look at SBIR.gov to see the
amount of data that is now available in real time, but this is
still a work in progress and continues to require funding and
time to get where we want to be.
Limiting the paperwork burden continues to be a challenge
where I do not believe that we have made much progress. While
this is a goal of the reauthorization, so, too, was increasing
the data collected and adding tools to reduce fraud, waste, and
abuse. Another challenge here is that most agencies require
SBIR applicants to apply using the same processes that major
universities or large businesses do. There are some
organizations, like DOD, that have a special submission portal
at NSF with their FastLane site that are more small business
friendly than grants.gov. But more can and should be done to
help standardize the proposal template and submission process.
I also think we need to focus on the time it takes to move from
proposal submission to award, especially between Phase I and II
when the firm is expected to hold staff in place while they are
waiting for funding.
As SBA's Director of Innovation and Technology, I will
continue to work closely with our sister agencies to make sure
that the SBIR and STTR programs are top priorities across the
Federal Government. I will hold agencies responsible for the
allocations required by statute and I will continue to work
with you to improve these programs. They are true gems and we
must make sure our small businesses know about these
opportunities. Thank you for your time.
Chairman CHABOT. Thank you very much.
Dr. Johnson, you are recognized for 5 minutes.
STATEMENT OF BARRY JOHNSON
Dr. JOHNSON. Mr. Chairman and members of the Committee,
thank you for this opportunity to testify regarding the Small
Business Innovation Research and Small Business Technology
Transfer programs at the National Science Foundation.
As mentioned, my name is Barry Johnson, and I am Director
of the Division of Industrial Innovation and Partnerships in
the NSF Directorate for Engineering. In this role I have
oversight responsibility for the SBIR and STTR programs at NSF.
For ease of communication, I will use the term ``SBIR'' program
to refer to the collective SBIR and STTR programs.
The SBIR program is an integral part of the NSF strategy to
stimulate innovation and address societal needs through the
commercialization of the results of research. We fund small
businesses at very early stages when the technology risk is
high and before the private sector is normally willing to
invest. Since NSF is not the ultimate customer of the
innovation stimulated by the SBIR program, the NSF SBIR
research topics are oriented to the needs of the marketplace
and the Nation as a whole.
In 1998, the NSF SBIR introduced a new supplemental program
called Phase IIB, and it is a platform to stimulate NSF-funded
active Phase II grantees to attract private sector funding for
further technology commercialization. The Phase IIB proposal is
submitted while the company is conducting the Phase II
research, and with Phase II research underway, the small
business is better positioned to attract investors because most
of the early stage technology risk has already been addressed
with NSF funding. The Phase IIB program requires that third-
party commitments be double the level of supplemental funding
from NSF up to a maximum of $500,000 from NSF. The Phase IIB
supplement was initiated to further fill the gap between the
funding from an NSF Phase II grant and the funding ultimately
required to achieve successful commercialization. The
supplemental funding from NSF ranges from $50,000 to $500,000.
Third-party investors include both public and private sectors.
For supplements over $250,000, the small business must
participate in a reverse site visit to NSF with its investor.
In addition to providing funding, we also assist our
awardees by providing them with an educational component based
in part on the NSF Innovation Corps, or so-called I-Corps
program, that helps entrepreneurs and their small businesses
understand market needs and customers, thus increasing their
chances of successfully commercializing new technologies. The
NSF SBIR program is also staffed with a team of program
officers with strong technical backgrounds in the areas
supported by the program and with business experience in large
and small organizations. The SBIR program officers generate the
topics, review the proposals, manage the awards, and provide
significant mentoring for the grantees.
NSF monitors the commercial outcome of our Phase II
awardees and has found that 32 percent of the NSF SBIR grantees
were fully successful and that they have at least $1 million in
revenue 6 years after completing the NSF SBIR Phase II award.
Companies note strong intellectual property, position strong
academic collaborations, and strong ties to market leaders as
major reasons for success. The success rate for companies
receiving Phase IIB awards using the same measure was 65
percent. The impact of the Phase IIB program on success rates
is thus very significant. The national academies in the recent
report on SBIR at the National Science Foundation found similar
commercialization impacts of the NSF Phase IIB program.
Mr. Chairman, this concludes my testimony. On behalf of the
National Science Foundation, the SBIR program, and our
awardees, I want to thank you for this opportunity to highlight
a program that provides small businesses with the means to keep
America on the forefront of innovation. I would be pleased to
provide any additional information that would be useful to you
and the Committee. Thank you.
Chairman CHABOT. But in any event, Dr. Portnoy, you are
recognized for 5 minutes.
STATEMENT OF MATTHEW PORTNOY
Dr. PORTNOY. Thank you. Good morning, Chairman Chabot,
Ranking Member Velazquez, and members of the Committee. My name
is Dr. Matt Portnoy, and I am the coordinator for the
Department of Health and Human Services SBIR and STTR programs.
My remarks today will primarily focus on NIH because our
agency represents 98 percent of the department's programs.
However, my office coordinates closely with the CDC, FDA,
Administration for Community Living, and the Administration for
Children and Families, our sister HHS agencies that also fund
the programs. HHS is the second largest funder of the programs
and the largest Federal supporter of biomedical research.
The NIH SBIR/STTR programs are ideally suited for creating
research opportunities for U.S. small businesses to stimulate
technological innovation. Examples of successful NIH SBIR
funded technology includes the Lift Lab's Liftware that creates
stabilizing technologies to help people with essential tremors
and Parkinson's Disease and SenesTech, which has technology to
manage rodent populations using a nontoxic approach that limits
reproduction.
I am pleased to tell you that the implantation of the
changes included in the Reauthorization Act of 2011 are
complete. This year, NIH increased its set-asides for both
programs to 3 percent and .45 percent, respectively. The
overall budget for the programs has increased from $680 million
pre-reauthorization, to the current set-aside of $877 million,
an increase of nearly $200 million. NIH and HHS continue to
meet and exceed the required set-aside spending each year as
found by annual GAO reports.
We have greatly increased our outreach efforts the past
several years. We continue to partner with the NIH
institutional development awards or IDeA program to reach
underserved small businesses in IDeA States and have increased
outreach to women-owned and minority-owned businesses. The last
3 years, we have reached over 24,000 individuals from all 50
States, D.C., and Puerto Rico, including nearly 1,000 women-
owned small businesses and 650 minority-owned businesses, as
well as efforts targeting all 23 IDeA States and Puerto Rico.
We anticipate increased applications from these groups further
diversifying the program.
NIH issued its first direct Phase II SBIR solicitation in
2014 and made our first awards in 2015. Success rates as
predicted track along with Phase I and are 19 percent, for a
total of 65 awards made last year. NIH and CDC recently
launched their commercialization readiness pilot program, or
CRP, in the fall of 2015. Our first receipt dates for these
applications was this past January 2016 with awards to be made
this summer. NIH has also implemented the STTR phase zero proof
of concept centers through the NIH Research Evaluation and
Commercialization Hubs, or REACH program, and I issued three
REACH awards in 2015 to the University of Louisville, the
University of Minnesota, and a consortium of four institutions
called the Long Island Bioscience Hub. We held a kickoff in
April 2015 to share the best practices learned from the NIH
Centers for Accelerated Innovation, a similar program funded by
two of our institutes and co-funded by the phase zero
authority.
In 2015, NIH's average time from receipt to notice of
intent to award was less than 200 days, well below the 12-month
requirement, and we have implemented significant changes in our
business practices to continue to shorten this time period.
HHS is grateful for the recent extension of the
Administrative Fund Pilot Authority through the end of fiscal
2017. HHS has spent 0.9 to 1.5 percent of our SBIR set-aside
per year towards a variety of activities, including the
increased outreach efforts I mentioned above, participation in
co-funding of the SBA road tour, streamlining our award cycles,
increase support for commercialization, funding the mandated
national academy studies, which found our programs are meeting
goals, with the exception of the outreach to minorities and
women, and providing support for new programs, to name a few.
These activities would not have been possible without these
additional funds and would need to be severely curtained or
eliminated without permanent funding.
HHS appreciates the flexibility to fund awards at
appropriate budgets that may exceed the established guidelines
if the science proposed warrants such an exception to ensure
successful outcomes. HHS offers a suite of technical assistance
programs, including our Niche Assessment program,
Commercialization Accelerated program, and a Life Science
Focused Pilot of the NSF I-Corps program.
In conclusion, the HHS SBIR and STTR programs seek to fund
the most scientifically promising projects for which private
and public funds are not traditionally available, and we strive
to leverage our portfolio across the biomedical enterprise.
This concludes my statement. Thank you for your attention
and I look forward to answering any questions.
Chairman CHABOT. Thank you very much, Doctor.
Mr. Smith, you are recognized for 5 minutes.
STATEMENT OF ROBERT SMITH
Mr. SMITH. Chairman Chabot, Ranking Member Velazquez, and
distinguished members of the Committee, thank you for the
opportunity to appear before you today and discuss small
business innovation research and small business technology
transfer.
The Department of the Navy greatly values our SBIR/STTR
program because we are taking a great program and making it
better by improving the business of the science. Small business
and industry value our program because of the continuous
outreach to create new business and science opportunities.
Through SBIR/STTR, American small business throughout your
States have proven over and again their ability to provide
lean, agile, and innovative solutions to our warfighter
requirements to help our service deal with the biggest
challenge of its defense and humanitarian missions.
As Mr. Sean Stackley, Assistant Secretary of the Navy
Research Development and Acquisition said, ``Small business and
competitive healthy small business industrial base are vital to
the long-term success and affordability of the department, as
well as our national security. The evidence is overwhelming
where affordability is paramount, a strategy that includes
small businesses creates affordable outcomes and promotes
innovation and technical advancement.''
I wish I had more time to talk about the incredibly
innovative SBIR/STTR firms participating in the Navy's program.
Aggressive, dedicated, responsive, and resourceful are just
some of the adjectives I would use to describe these incredible
businesses.
Two examples of outstanding Navy SBIR/STTR contributions to
our military and our Nation are EMILY and Automated Celestian
Navigation. The Emergency Integrated Lifesaving Lanyard, called
EMILY, is a robotic lifeguard deployed worldwide by Hydronalix,
a rural Arizona company. Several of EMILY's technology derived
from a 1991 Office of Naval Research STTR project to track well
migration. The tracking system reconfigured as the Silver Fox
unmanned air vehicle was deployed in 2007 to provide convoy
protection to Marines in Iraq saving lives. The same basic
technology package reconfigured as EMILY is supporting first
responders throughout the U.S. and other nations and saving
lives today in the Mediterranean Sea refugee crisis. Trex
Enterprises' Automated Celestial Navigation system provides a
solution in GPS-denied environments through a fully automated
star tracker for imaging individual stars both day and night to
enhance navigation capability.
Initially focused on Navy challenges, ACN attracted
attention across the government, the result being a fellow
agency ordering 15 systems with applications in crime fighting
and drug interdiction. Over the last 6 years, using its non-
SBIR funds, the Navy has invested an average of over $500
million a year in SBIR/STTR technologies. This investment we
believe leads the Department of Defense and the Federal
Government.
There are four primary factors that have made the Navy's
SBIR/STTR program successful.
Culture. Our naval acquisition community considers SBIR/
STTR part of the solution for delivering quality innovations to
our warfighters quickly and cost effectively.
Team work. With emphasis on delivering solutions to the
warfighters, our dedicated professionals make continual
improvements to small business performance through our proven
SBIR/STTR transition program in its annual forum. The forum,
being conducted currently with the Sea, Air, and Space
Symposium will happen 16-18 May at the Gaylord at National
Harbor. I would be honored if you and your staffs can come by
and have a visit with us.
Moreover, the Department of the Navy guidance is aligned
with the Department of Defense Better Buying 3.0. As I
mentioned in my testimony before the Senate Small Business and
Entrepreneurship Committee, I believe that although we collect
and report an incredible amount of information on the SBIR/STTR
programs, we are not providing you the data that you need. I
recommend a data summit where we collectively identify the
information needed to effectively run the program, determine
how to effectively collect that data, and rapidly provide
needed reports on the execution of the program.
Performances mentioned above led former Secretary Jacques
Gansler to tell the Senate Arms Service Committee recently that
SBIR/STTR should be made a permanent program. The Department of
the Navy continues to seek improvements in our program and to
seek a more diverse vendor base, increase small business
integration into the Navy business, and levy small business
advances for Navy requirements.
I look forward to working with you and your staff regarding
the importance of SBIR/STTR authorities. Thank you.
Chairman CHABOT. Thank you very much. We thank all the
panel members. I recognize myself for 5 minutes.
Mr. Williams, I will begin with you if I can. Across
agencies, what is being done to improve the data collection and
dissemination? The 2011 reauthorization required a great deal
more reporting to the SBA and also to us here in Congress. What
are you doing to help improve the data collection efforts
across the agencies? Also, you had mentioned how unsuccessful
we have been in reducing paperwork. If you would like to
comment on perhaps something else we might try where it has not
necessarily worked in the past.
Mr. WILLIAMS. Well, I will start with the paperwork side,
which is a challenge. But most of that I believe falls outside
of the chain of command of the SBIR program offices. It is more
on the head of contracting and head of granting organizations.
The way a proposal needs to be submitted and the things that
need to come along with that are driven by FAR and DFAR and by
those communities. I think one of the challenges is, and
understandably, you have been trying to put that emphasis on
us, which we have tried to do, but there is only so much the
SBIR management community can do. I think those other
communities are tasked with kind of establishing how
contracting is done, and that is where most of the paperwork
happens. That might be an approach to maybe ask how they can
reduce some of those things. But I do think in trying to then
make common proposals and things like that, so at least one
form is working, maybe not across the board but at least for 80
percent. We can work on those things.
As far as data collection, we have done a lot. When the
legislation passed, we had a pretty old system at SBA and data
collection, and so we modernized that system and we have spent
a lot of time and effort to develop that system, and then
portals so that the data can get pushed by the agencies. The
challenge has been we have about 150,000 records, and each
record has over 70 fields, so it is a massive amount of data.
When you add additional requirements, you have to tag those to
the original records, and so it has been challenging, but we
have made a lot of progress, and the agencies have been very
successful and helpful in trying to, because they have to push
it to us and we have to check it and all that. We are making
great progress but there is more to be done.
Chairman CHABOT. Thank you very much.
Mr. Smith, I will move to you next. First of all, thank you
for your service in the Marine Corps. We appreciate it very
much.
The 2011 reauthorization bill, among other things,
authorized the Department of Defense to establish goals to
increase SBIR technology transition and to use incentives to
encourage prime contractors to meet those goals. Has the DOD at
large implemented these provisions?
Mr. SMITH. Chairman, I know they are working it. I have not
seen specific goals. I do know that DOD instruction for
acquisition 5002 has been changed and modified to reflect that
you will have small business goals. I do not think there has
been a specific metric applied to those major acquisition
programs. I know owe are discussing a metric, but like all
other people, it is hard even within the Department of Defense
to have one single metric that matters. Is it Phase III
dollars? Is it value to the warfighter? Is it lives saved? It
is hard to measure some of these things and collecting that
data to make a management decision can be incredibly difficult.
Chairman CHABOT. Okay, thank you very much.
Dr. Portnoy, let me go to you next. You mentioned that you
encourage small businesses to submit their own proposals that
fit your mission as opposed to having them all respond to your
solicitations. Could you talk about how that process works a
little more?
Dr. PORTNOY. Yes. Thank you, Mr. Chairman. In fact, we do
both. We have what we call a parent solicitation, which accepts
investigator initiated applications. This is where small
businesses can propose any technology that fits within our
mission base, so any life science or biomedical, bio behavioral
technology. We do not presume to know where the best or the
next best innovation will come, so we leave it to the community
and entrepreneurs to tell us that. About 70 percent or so of
our applications and awards are what we call ``investigator
initiated.'' The remainder are in response to specific funding
calls where we put out more targeted topics via both grants and
contracts, where we have identified are more specific need for
one or more of our institutions to accomplish its mission.
Chairman CHABOT. Thank you very much. I have a little bit
of time left. Dr. Johnson, I will move to you before my time
runs out.
As you mentioned, the National Science Foundation, excuse
me, yes, is not the ultimate customer of the innovation
stimulated by the SBIR program. Could you talk a little more
about how the SBIR program's focus on commercialization
supplements the basic and applied research being done at the
NSF?
Dr. JOHNSON. Yes, sir. As you know, a lot of NSF's funding
goes into the support of fundamental research, and one of our
goals is to actually transition that fundamental research out
into commercialization. We emphasize with our SBIR program, not
only in the review process, not only the technology and the
quality of that technology, but we also bring business
reviewers into that process to review the proposal for
commercialization opportunities. They are looking at it with
the eye of a business individual to determine if there is a
market, if that market can be served by this particular
technology, and if this team and the idea that is being
presented has the capability to ultimately achieve technology,
commercialization, and success.
Chairman CHABOT. Thank you very much. My time has expired.
I will now yield 5 minutes to the ranking member.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Dr. Johnson, the NSF has a very successful Phase II program
whose participants commercialize at high levels. According to
the economic study, 81 percent of projects that receive a
sequential award under the program achieve some level of sales.
What about the program makes it so successful?
Dr. JOHNSON. I think part of what makes it so successful is
that we have a public-private partnership in that Phase IIB. We
have private investors or private partnerships for that
particular small business that are coming to the table to
actually help the company, either through investments,
purchases of the product that that particular company is
providing, and help with the commercialization. I believe that
ultimately it is the public-private partnership that exists
within that Phase IIB program that is critical to its success.
Ms. VELAZQUEZ. So your Phase IIB requires a 2-to-1 match;
right?
Dr. JOHNSON. Yes.
Ms. VELAZQUEZ. Of a third-party investment to SBIR dollars.
How has this component of the program helped businesses
commercialize the research?
Dr. JOHNSON. I think one of the ways that it helps is that
investors are constantly looking for ways that they can get
more money for their investment or more effort for their
investment.
Ms. VELAZQUEZ. What do you think is the key to replicating
the success in other agencies?
Dr. JOHNSON. I think the program is time-intensive. It does
require significant effort on the part of our program officers
because in most cases we are doing site visits at NSF where we
bring the team in. We have a couple of hour presentation by the
small business. We talk to their investors. I think it is a
time-intensive nature to this particular program, and I think
that is the key to replicating it at other places.
Ms. VELAZQUEZ. Okay. Mr. Smith--thank you--we have seen
DOD, that there is a particular rush in transferring the
technology over from research phase to incorporation in the
field. In fact, GAO could not even assess the extent of tech
transfer because the data is not being collected. How is the
Navy addressing the issue of ensuring successful tech transfer?
Mr. SMITH. Ma'am, we do most of that when we start making
these agreements on who is going to fund the 2.5s, the
subsequent Phase IIs. Saying we have technology transition
agreements where the parties agree this is the research I am
going to do, here are the funds I am going to bring to it, and
if successful, this is the program where this technology will
be inserted----
Ms. VELAZQUEZ. Can you explain why the GAP report basically
says that it is difficult to even assess??
Mr. SMITH. Because we do not track that individual
component. So it is sometimes hard to say, where did that
component go within the system into the platform? So it can be
difficult to track an acquisition who is building my carrier or
my aircraft, to understand where that ship or that algorithm
from the small business eventually ended up.
Ms. VELAZQUEZ. Why is it so difficult to track? We need
data, you know.
Mr. SMITH. Yes, ma'am.
Ms. VELAZQUEZ. In order to exercise our role in terms of
oversight and see what is working and what is not, we need to
have the data.
Mr. SMITH. One of those is a temporal challenge, ma'am,
because it can take 5 to 7 years to transition the technology,
and those are resources to track an individual research effort
along its progression and when does it get to a program. Or
when did it spin off to another program? It is difficult, and
we do not have the resources to track 5, 10 years.
Ms. VELAZQUEZ. Talking about data, Mr. Williams, SBA has
published guidance on benchmarks for Phase I to Phase II
transitions. The goal of these benchmarks is to prevent the
same companies from continually winning Phase I awards without
progressing to Phase II. Are agencies enforcing these
benchmarks? If so, have there been any cases where a company
was made ineligible for the year?
Mr. WILLIAMS. Yes. That has been implemented across all the
agencies. Twenty-five percent of your Phase Is have to go to
Phase II. If they do not, you cannot submit a proposal for a
year. That is implemented across all the agencies, and it is
about 6 to 12 companies a year that will fall into that. Some
of them have actually graduated.
Ms. VELAZQUEZ. So the agency is keeping track?
Mr. WILLIAMS. Yes. We push the information to the agencies.
We contact the firms and then we push that information to the
agencies of the firms that are on that list for the year.
Ms. VELAZQUEZ. Mr. Williams, in the last reauthorization,
the use of the 3 percent funds to cover administrative costs
was an issue for me. And so the pilot was recently extended.
The committee has yet to see any reports from SBA. We do not
know the effectiveness of the pilot and whether agencies are
using these funds on allowable costs. Why should we continue to
allow for the SBIR funds to be used for administrative costs
when we cannot even be sure if the funds are used as it was
stated?
Chairman CHABOT. The gentlelady's time has expired but you
can answer the question.
Mr. WILLIAMS. So quickly, I committed to submitting that
report by the 30th of June to Congressman Moulton the last time
I was here, and I will do that. We are working on that.
Ms. VELAZQUEZ. That will cover 2012? 2013? 2014?
Mr. WILLIAMS. That will cover up to--well, it started in
2013, 2014, and 2015.
Ms. VELAZQUEZ. Right. Okay.
Mr. WILLIAMS. Yes. So we will work on that.
Ms. VELAZQUEZ. Thank you.
Chairman CHABOT. The gentlelady's time is expired.
The gentleman from Missouri, Mr. Luetkemeyer, who is the
vice chairman of this Committee.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
I think I can solve your problem without being able to see
this. If you just issue pillows to everybody we could sit up
higher and we could see over the top of the deck here. Okay.
In all seriousness, thank you guys for being here this
morning. Good stuff. I appreciate your participation and your
information.
Mr. Williams, you deal with these programs every day. Can
you tell me how we can improve them? And my question is, I know
you have talked about the data collection already. What about
things like tax benefits, our treatment of--is there a way to
improve the way the small business innovating folks can have a
better tax advantage to be able to do some of this? Or perhaps
maybe the size of the award, is it too small, too large? And
the speed with which the awards are given, either going too
slow, too fast? Can you give me some ideas on some of those
right quick?
Mr. WILLIAMS. No, because it is hard. But yeah, I will do
my best. So I think we have been able to do the administrative
dollars, which have really helped us address all of those
areas, but why I say no is what we found is there is no ``one
size fits all.'' NSF does things a certain way, but even with
NSF, a software project is different than a materials
development project, is different than a health project. Trying
to have one way and expect a Phase I to go to a Phase II to go
to a Phase III we know does not work, and that is why you have
to have flexibility. Some will need more money. I think,
funding in increments, so if something does not pan out we cut
it off and we put more money in other things, but you do need
more money in certain projects, and then you have to be able to
assess that with the expertise at the agency to say, wow, this
has transitioned. A program of record is coming forward. The
answer is it takes more management. What is unique about SBIR
is the program makes all the money go to the small businesses
and not the government entity to spend any in-house. That is
where the 3 percent helped a lot and we are doing more with
that.
Mr. LUETKEMEYER. Okay, quick question. What percentage of
applicants are awarded?
Mr. WILLIAMS. For Phase I, it varies a little bit, but it
is on average about 15 percent of the Phase I proposals that
come in are awarded, and then about 40 to 50 percent of those
go from Phase I to Phase II.
Mr. LUETKEMEYER. Okay.
Mr. WILLIAMS. And then about that percentage go to Phase
III.
Mr. LUETKEMEYER. The 85 percent that do not get awarded,
what is the problem with their presentation? Is it something
does not work? It does not have a viable business plan? Is it
pie in the sky or what? What is the problem?
Mr. WILLIAMS. Yeah, it would be all of those. We look at
three things. We look at the quality of the project. Certain
ones that are granted, they are focused on a specific need. If
it does not hit that need, then they are not good and they not
get evaluated well.
Mr. LUETKEMEYER. Okay, so is it need evaluated by you or is
it need evaluated by----
Mr. WILLIAMS. By the individual agencies and the technical
experts within those agencies. Now, some of them that are
grantor organizations push it out to peer reviews. They will
bring in the experts in the material sciences and things.
Contracting shops will do it in-house. Like, DOD uses their
experts within house.
Mr. LUETKEMEYER. I think, Mr. Smith, you talked about them
having business teams review it, did you not? Or was that Dr.
Portnoy?
Mr. SMITH. No, sir. That was NSF.
Mr. LUETKEMEYER. Okay, I am sorry, Dr. Johnson, you talked
about having business teams review the applications for
viability of that applicant; is that right?
Dr. JOHNSON. Yes, sir.
Mr. LUETKEMEYER. I think you had some numbers, or I was
going to ask--I think Dr. Portnoy, I believe, had some numbers
on successes for his people.
Dr. PORTNOY. Yes, sir. Our Phase Is are around 15 to 20
percent, and Phase II is 35 to 40 percent. That more or less
holds from year to year. We do have a mandated two-tiered peer
review process by NIH's authorization act, and so we use
external peer review for Phase I where we use both business and
academic experts and commercialization experts, and we strive
to have around 25 to 50 percent of our review panels be from
the business side. Our second level of review is our advisory
council, which is more of an administrative review prior to
award being made.
Mr. LUETKEMEYER. Well, I think it is important, you
mentioned, to have business folks on the council. I mean, if
you have business people on your review boards, I mean, they
understand how the real world works, whether this is viable or
not. To me that would be very important on your second team as
well, which you indicated not much participation there.
Mr. Williams, you also talked about, mentioned NASDAQ a
minute ago which makes me think, is there plenty of capital
available for a lot of folks whenever they come out of the
program to be able to take this product or service to the next
step? Or have you seen a problem with funding at that next
level for the outside funding?
Mr. WILLIAMS. Overall, we have seen a problem with that
funding to the next level because risk, that group is more risk
averse than they had been in the past. Also, they do not like
to invest in DOD projects as much as they like to do life
sciences. It depends on some of that, and half the program is
DOD. You typically will not get a venture investor in a DOD-
type project.
Mr. LUETKEMEYER. I have a couple seconds left. Mr. Smith,
would you like to comment on that?
Mr. SMITH. I would have to concur with Mr. Williams. From a
venture capitalist position, when most of our contracts are
going to be cost plus award fee of 6 percent, that is not going
to drive them to that.
Mr. LUETKEMEYER. So that begs the question, do you go back
to companies that have worked with you before as a preferential
awardee versus a new company that comes to you with a new idea?
Chairman CHABOT. The gentleman's time is expired, but go
ahead and answer the question.
Mr. SMITH. No, sir, because the first gate will be does it
technically address my challenge?
Mr. LUETKEMEYER. Is the idea or the product going to fit
with your program?
Mr. SMITH. Yes, sir.
Mr. LUETKEMEYER. Very good. Thank you, Mr. Chairman. I
yield back.
Chairman CHABOT. Thank you. The gentleman yields back.
The gentlelady from New York, Ms. Meng, who is the ranking
member of the Agriculture, Energy, and Trade Subcommittee, and
whose district I visited last week and did a field hearing with
her, and one with Ms. Velazquez as well, both in New York City,
and it shows the bipartisan cooperation on this Committee. You
are recognized for 5 minutes, and we will not take any of that
out of your 5 minutes.
Ms. MENG. You kept your word. Thank you, Mr. Chairman, for
coming out to our district in Queens, New York. We really
enjoyed having you, and of course, as always, our ranking
member, who comes often.
To the panel in general, we saw R&D budgets decrease as a
result of sequestration. How has this in any way affected the
programs at your agencies? Anyone is welcome to answer.
Mr. SMITH. The first is numerical. If it is 3 percent of my
extramural, if the R&D budget is going down, there will be less
money there. We have also seen that my program managers will
become more risk averse. My challenge is getting across that
valley of death. But that is where my funds, the 2.5, the
subsequent Phase II, I can encourage them to put their money in
if they can see someone else is going to help progress that
technology. It has created a challenge. We have to work harder
at it.
Dr. PORTNOY. At NIH, during that year we, of course,
received an across-the-board cut. The SBIR and STTR was
affected proportionately, and as such, our awards were reduced
a number that year. That rebounded when those cuts were
restored the following year, and then in 2016, the current
year, the NIH received a very large increase in its budget that
was proportionately passed down to SBIR for a larger budget
this year.
Ms. MENG. To Mr. Williams, it would appear that
universities have an ability to reach a significant number of
potential SBIR participants. Has SBA partnered at all with
these institutions to reach underrepresented groups? What
incentives or resources could we provide these institutions to
encourage outreach to underrepresented groups?
Mr. WILLIAMS. Well, we have begun two things. Last year, we
kicked off what we call our SBIR road tours. We went to 22
States, and many of those were held on university campuses,
probably at least half of them. We also have a program called
FAST, and then it has got sister funding called FAST to SBTDCs.
Both of those programs typically go to university-oriented
SBDCs or organizations, and part of the motivation and the
requirement on that is to reach underrepresented communities.
The three categories are an underrepresented State, a minority,
or women companies and STEM-oriented people.
Ms. MENG. Lastly, I wanted to ask about minority and women-
owned business participation, specifically with NSF and NIH.
How have you found outreach? Which techniques have been
successful in terms of outreach, whether it is to help firms
succeed once they get an award or hoping to lead an increase an
applications and awards?
Dr. JOHNSON. One of the programs that we have started to
see significant success with is the I-Corps program, and it in
part addresses the issue you raised in your previous question.
In I-Corps, we fund a team, which includes the technical
expert, which is normally a faculty member at the university
and an entrepreneurial lead, normally a student that wants to
start a company, and a business mentor who is an experienced
entrepreneur or business person. Those three go through an
intensive process of customer discovery to determine whether
there is a commercial opportunity for the idea that they would
like to bring forward and use to start a company. We have had
more than 600 teams go through that training. About 39 percent
of those teams have a woman as a member, so we are beginning to
see an increase in the number of women that are engaged in
those entrepreneurial training activities, and then we are
beginning also to see significantly enhanced success rates in
the SBIR program from teams that have gone through I-Corps
training as a precursor.
Dr. PORTNOY. Thank you. This is a very challenging problem
as you no doubt are aware, and so we are taking a multipronged
approach, both within the agency at NIH and with all of the
agencies with a trans-agency outreach group. We are doing
things like participating in the outreach tour, making sure
whenever we go on outreach that we require the organizers to
find and identify their local women and minority-owned
businesses because they are the best sources for that. We also
have been doing quite a bit in beginning to work with
professional organizations, such as Women in Bio and other
related organizations. We did webinars for them. We are working
with HBCUs as recently as last week doing a webinar and having
an in-person meeting at NIH to bring in those communities as
well.
Chairman CHABOT. The gentlelady's time is expired. Thank
you very much.
The gentleman from California, Mr. Knight, is recognized
for 5 minutes.
Mr. KNIGHT. Thank you, Mr. Chair.
To Mr. Smith, it pains me as a soldier to say this, but as
you are being very successful in the Navy, are other DOD
agencies kind of modeling or looking after what you are doing
and doing similar things? Or are they trying to improve? Or can
you give me an idea of what you're doing that others are not
doing?
Mr. SMITH. The quick answer is yes. One of the things
working with DOD is we continually discuss best practices, what
will work with our organizations. Some of the challenges they
have have to be structural with them, but I have got to say my
sister services are interested in transitioning the
technologies to their warfighters.
Mr. KNIGHT. Okay. On that same line, there are a couple of
us up here that sit on Armed Services and acquisition is the
number one goal right now, how we can speed it up, how we can
get it quicker to the warfighter, things of that nature. Can
you give me an idea of issues that you are working on that
speed up that process that make the acquisition process not so
bureaucratic?
Mr. SMITH. Our challenge, as Mr. Williams spoke to, the FAR
and DFAR. When my SBIR companies have to comply with the same
regulations, procedures, and processes that we expect of our
defense primes, it is very difficult if it is two people in a
garage. We work with that. I wish there was proportionality for
my contracts, and we are working with that community, but most
of the time they say we are only doing what Congress has
directed we can accomplish.
Mr. KNIGHT. To Mr. Williams, there are ways to cut down
the, again, the bureaucratic mess, the over--extra paperwork,
the things that we duplicate. Can you give me an idea of what
you have done to kind of bring that process down a little bit?
Mr. WILLIAMS. That is the process that I thought that we
actually have not done a great job on. It has been a challenge
and it is a hard area to focus on. We are bringing together the
committees, I mean, all the agencies. We have working groups on
contracting and grants, we are going to have a workshop at our
conference in May where we are going to bring a lot of the
government people from all across different agencies. It is a
problem outside of just SBIR. As you mentioned, it is across
the board. It is much bigger than us, so it is something we
need to tackle, but most of the requirements state that SBIR
cannot be different than another proposal or application or
award. They have to follow the same processes, and what I have
just seen in my 27 years, is the requirements of paper have
gone up, to do more due diligence by those shops. I wish I had
a better answer for you.
Mr. KNIGHT. I guess I can ask the question of the whole
panel then. Is there something that we should be looking at
here in the Small Business Committee that can make it easier? I
think that a lot of us look at small businesses and we talk
about the issues that either happens at government here at this
level or at the State level that makes small business do things
on a weekly basis or on a monthly basis when bi-annually would
be good enough to accomplish the mission. Is that something
that we can look at here as a Committee as a whole?
Mr. WILLIAMS. I think we have been tasked, and the
reauthorization in the past has asked for studies to be done,
potentially a study that would look at that but it would task
again the heads of contracting grants to report back to you on
what can be done, and potentially different for small
businesses applying and not have to go through the same and do
the same types of work that big businesses--and it is not just
submitting the proposal, but as you mentioned, it is the
auditing that happens, so DCAA and things like that. But I
think getting those guys to kind of look at the problem might
come up with some solutions because they would be the ones that
would have to implement it.
Mr. KNIGHT. I will not speak for the chair, but I think
that part of the mission of this Committee is to make sure that
small business can work efficiently and be accountable for what
they do but also have the ability to make money and succeed and
expand and do all the things that we want them to do here in
this great country.
With that, I yield back. Thank you, Mr. Chair.
Chairman CHABOT. Thank you very much. The gentleman yields
back.
The gentleman from Massachusetts, Mr. Moulton, who is the
ranking member of the Health and Technology Subcommittee is
recognized for 5 minutes.
Mr. MOULTON. Thank you very much, Mr. Chairman.
I am one of the members who, like Mr. Knight, serve on
Armed Services, and have been very pleased to see the Navy's
robust implementation of their SBIR program. And Mr. Smith, I
wanted to ask you a bit about the data summit idea that you
mentioned in your testimony and you first proposed before the
Senate. What exactly would that look like?
Mr. SMITH. I think we get the appropriate communities
together to ask some basic questions--what do you need? And how
can we collect it and report it? I think the challenges is
individually between here, SBA, DOD, even the Navy, we have
each got a different question and need a different piece of
data, where in acquisitions, we have never gone back and done a
systems of systems approach to this challenge. I spend an
incredible, inordinate amount of time reconciling data between
multiple databases so I can get one answer to one question.
That is part of it. I think it starts with possibly the
scientists sitting down going, what are all the reports doing?
Why are we doing them? Are we answering the question that we
initially intended to answer?
Mr. MOULTON. Is this summit something that could be covered
in the 3 percent administrative budget? Could we pay for it
through that?
Mr. SMITH. Absolutely. Yes, sir.
Mr. MOULTON. What do we need to do to move this forward? I
mean, it seems like a reasonable idea. What do we need to sort
of make this happen?
Mr. SMITH. I am not quite sure on the language, but we can
get back to you, sir, with that.
Mr. WILLIAMS. Yeah, and SBA will take the lead to start
working that with the agencies because we would want to do it
cross agency and set something up and start to have a working
group and work towards that. We will get back to you on that.
We will take that lead.
Mr. MOULTON. Great. What can we expect as a timeline on
this? I mean, give us an idea of when we might see something
that is actually coming together.
Mr. WILLIAMS. Let us start to have meetings within the
next, you know, 3 months and start to lay out how we do it.
What I know about this in the past, because we did it at DOD,
it is not that you can just say, ``Okay, we will do this, we
will have a report, and then it is over.'' It is pretty much
you start it and then you run it for years, but we need to get
it started and figure out what are the issues that we need to
gather, who is doing it, and kind of talk to our--and usually
it is our data people that really have to get together. We will
start in 3 months and then we will continue to give you updates
on what is going on.
Mr. MOULTON. Okay. Great. Thank you very much. Mr.
Chairman, I yield back.
Chairman CHABOT. Thank you very much. The gentleman yields
back.
The gentleman from New York, Mr. Gibson, is recognized for
5 minutes.
Mr. GIBSON. Well, thanks, Mr. Chairman. I appreciate the
panelists here today. I think we are capturing some very good
best practices we can circulate and look to continue to move
towards excellence.
Towards that end, Dr. Johnson, if you could talk for us,
put for the record a little bit more detail on the Innovation
Corps and how you have seen this flourish and how you worked
the funding for it.
Dr. JOHNSON. Thank you. I-Corps is a relatively young
program. It was started in 2011 and we have created a national
innovation network that includes seven nodes that are focused
on delivering the curriculum that is part of the training that
these teams receive. In addition, we have 51 sites that work
collaboratively with those nodes. As we talked previously, four
of those sites are at historically black colleges and
universities, so we are trying to use this network to build
relationships with underrepresented groups. And we have had
within just the National Science Foundation, we have had over
600 teams that have gone through the training at the national
level, but I think that understates the training that is being
delivered because it does not count the training that is going
on at sites. We find that, for example, in Milwaukee, the site
there that has delivered the training now to about 27 teams
just in the first year or year and a half, and so this is an
intensive training where the goal of the training is for the
team to understand what they have. Do they have an idea that is
worthy of commercialization? If so, what are the steps that
they need to take? As I also mentioned, we are seeing increased
numbers of proposals coming in to the SBIR program, and we are
seeing increased success rates for that. We are growing the I-
Corps program. In fact, we have a solicitation out now for
renewal and possible new nodes that would be created. We also
have a new site solicitation out for renewal and creation of
new sites so that we can grow this network. Our goal is that
anyone, any entrepreneurially-oriented faculty member or
students or others that want this training will have access to
this training.
Mr. GIBSON. Well, thank you. Likewise, Mr. Smith, how about
any feedback you can share with us with regard to your
guidebook, how well that has been received, and has that been
shared with some of the other services as well?
Mr. SMITH. Yes, sir. Actually, one of the services I think
changed the cover and claimed it as their own. But we
continually get evidence----
Mr. GIBSON. Well, I am an Army guy, too, so hopefully it is
not theirs.
Mr. SMITH. It might be theirs. What we find is, just like
everyone else, one of the philosophies I use with my team is
make their jobs easier. We find the guidebook has made their
job easier. Rather than finding that contract officer who does
maybe one or two SBIR contracts a month and needs to go through
the whole FAR to find the one chapter, the guidebook has helped
put that in one central location for him.
Mr. GIBSON. Excellent. In seriousness, that is among the
ways we get more excellence in our formations, is really by
just cross-leveling and sharing best practices, so I appreciate
that.
Related, you talked about what you saw as the utility of
the 2011 reauthorization, and you talk about how that rather
significantly, dramatically, reduced the award times, and the
distribution thereof. Can you put a finer point on that, on how
you used that 3 percent?
Mr. SMITH. What we used for that 3 percent is we funded a
contract center. I call it my focus contract center, where they
have a team who essentially are experts in doing SBIR
contracts. They do those every day. They have got their
standardized templates and their formats. Instead of a 10-page
cost proposal, they are able to do it with two, those kinds of
things. That is where we have seen reductions, and that is
actually one of the follow-ons we are doing is that team is now
going to go out to my other contracting centers and provide
training to them.
Mr. GIBSON. Yeah. Thank you very much. I want to thank the
whole panel for this. We do these hearings, of course, all the
time. Oftentimes, we dilate on the problems and that is
important, but it is also good to have a hearing such as this
where we can capture many of the good things that are going on.
We can fertilize that, cross-fertilize that drought. So thanks
very much. I yield back, Mr. Chairman.
Chairman CHABOT. Thank you. The gentleman yields back.
I would like to now recognize the gentlelady from American
Samoa, Ms. Radewagen, who is the chairman of the Subcommittee
on Health and Technology. You are recognized for 5 minutes.
Mrs. RADEWAGEN. Thank you, Mr. Chairman. I, too, would like
to add my welcome to the panel. Thank you for being here today.
My question is for Director Johnson. Director Williams; I
am sorry. How are the R&D grants and contracts advertised to
small businesses that conduct R&D?
Mr. WILLIAMS. They are advertised through websites. We push
them out through SBIR.gov, but each agency, does have their own
website also where they list their topics. On SBIR.gov, you can
go in and we pull all those topics available, so anyone can
search at any time, find out what awards, what topics are out
there, but also what awards have been done in the past, what
agencies work on those, and then push to the agency sites.
Mrs. RADEWAGEN. As a follow-up, as you are aware, the U.S.
territories are geographically and technically isolated. Has
there been any consideration for targeted outreach where R&D
objectives, grants, or contracts directly or indirectly impact
or benefit United States specific island territories?
Mr. WILLIAMS. Our focus has been on increasing our ability
to get to anywhere. Web-based tools, we have done an awful lot.
It is not that we do not target--I do not think topics are
targeted for specific regions of the country; they are targeted
towards technology areas. What we try to do is actually provide
training to areas so anyone can get the training they would
need to submit proposals, understand the process, and things
like that. DOE, for example, has done an excellent program,
what they call their Phase Zero program that they funded with
the 3 percent, and that program, actually, if you are a woman,
a minority, or an underrepresented area, which your island
would fall under, they will give special assistance in helping
write the proposal. They provide additional assistance above
and beyond. There are programs like that, and we have been
trying to bring that in to our SBIR.gov. We have a training
book, a train the trainer book that we give out, so we are
trying to get more boots on the ground training locally. Even
if we were to come in and leave right away, that really does
not, we found, work as well as having someone established in
those local areas. Through programs like FAST programs, anyone
can submit proposals to get cost and funding to be a trainer
and to get the word out.
Mrs. RADEWAGEN. Thank you, Mr. Chairman. I yield back.
Chairman CHABOT. Thank you. The gentlelady yields back.
I now would like to recognize the gentleman from New York,
Mr. Hanna, who is chairman of the Subcommittee on Contracting
in the Workforce. You are recognized for 5 minutes.
Mr. HANNA. Thank you, Chairman.
Dr. Johnson, 15 percent of the overall applications are
generally accepted. Of that 15 percent, which would reflect 100
percent of those were accepted, you said that 32 percent are
successful, 6 years, a million dollars, commercial. Can you
talk to me about the other 68 percent and what that looks like
in the real world?
Dr. JOHNSON. We see--I guess there are a couple things that
we see along the way. You are right with the numbers on the
Phase I grantees, and then Phase I grantees obviously can apply
for a Phase II grant. We see approximately 80 percent of those
actually make that application. 20 percent are falling out
after that Phase I process. In some cases they have gotten
beyond the point where they need our help. In other cases, they
have realized that the idea is not technically feasible and
they will stop pursuit of that idea. There is some loss between
the Phase I and then the transition to Phase II.
I should point out, and I would be happy to share some of
this information with you all if you would like. We have a data
collection program that we created over a decade ago where we
actually follow these grantees at a 3-year point, a 5-year
point, and an 8-year point. We reach out to those grantees to
find out, one, are they still in business? Two, are they
generating jobs or are they generating revenue? Have they
solved the problems that they needed to achieve
commercialization? We gather as much information. That is
through--it is a time-intensive process because it is through a
personal phone call that we actually reach out and gather this
information. To answer your question though, the reasons are
all across the map. We see some teams that disintegrate. We see
technology that just cannot be resolved. It is a number of
things.
Mr. HANNA. Naturally, you are accepting a certain amount of
risk. You have to by definition. Are you comfortable with the
matrix you used to do that? Should there be more failure?
Should there be less failure?
Dr. JOHNSON. Well, we feel like we are comfortable with the
decision-making process because, as I mentioned earlier, we do
bring in in the review process both technical experts and
business experts. We are actually getting a very solid look at
the proposal from the very beginning, and we do that again at
Phase II, when we get ready to award. We do that again for the
Phase IIB if we get ready to sponsor someone in that. We have a
due diligence process that we believe is as thorough as it can
be.
Mr. HANNA. I would guess that some go way beyond a million
dollars.
Dr. JOHNSON. They do.
Mr. HANNA. Using a simple percentage does not really give
you the whole dynamic of the outcome or the success----
Dr. JOHNSON. It does not.
Mr. HANNA.--of the program overall. Can you talk about
that, if it is even right?
Dr. JOHNSON. You are exactly right because we do see, and
in fact, we have the data that shows the total amount of
revenue generated by that collection of companies, and it is
hundreds of millions of dollars generated by it.
Mr. HANNA. That might be a much better thing to look at
than the number you have on your page.
Dr. JOHNSON. Absolutely. I think that is an excellent
point, and we do have that data. My goal was simply to
demonstrate Phase IIB is actually doubling the success rate for
that measure.
Mr. HANNA. You did not do yourself any favor by doing it
like you did it.
Dr. JOHNSON. Okay.
Mr. HANNA. I think. I mean, I could be wrong.
Dr. JOHNSON. No, I appreciate that input.
Mr. HANNA. Well, thank you very much. I yield back.
Chairman CHABOT. Thank you. The gentleman yields back.
I would now like to yield to the ranking member for a final
question.
Ms. VELAZQUEZ. Yes, thank you, Mr. Chairman.
I cannot leave this hearing without stating for the record
that I do have an issue with the fact that one of the statutory
objectives of the SBA program is to increase the participation
of minority and women-owned businesses in the R&D arena. I want
to hear your commitment that you are going to be working with
us in seeking solutions to this issue. We cannot deny the fact
that the face of America is changing, and especially in the
small business sector. By neglecting this, we are neglecting
the ultimate goal of fostering innovation. I want to work with
you throughout this process before we come to drafting final
legislation on the reauthorization, but I do want to see this
issue addressed. For NHA, the share has declined from a pick of
3.5 percent in 2006 to less than 2 percent in 2014. That is
unacceptable and we need to address it.
Thank you, Mr. Chairman.
Chairman CHABOT. Thank you. The gentlelady yields back.
Ms. VELAZQUEZ. I just want to hear from each one of you.
Oh, did you want to hear from them?
Ms. VELAZQUEZ. Yes, please, that you are going to be
working with us.
Mr. SMITH. Absolutely, ma'am.
Dr. PORTNOY. You have our commitment.
Dr. JOHNSON. Yes, we are committed to it. In fact, I have
asked one of my program directors to lead the effort on
reaching underrepresented minorities for the division as well.
Ms. VELAZQUEZ. And women.
Dr. JOHNSON. Yes.
Mr. WILLIAMS. Yes. I agree. I think we even need to go
deeper and look at principal investigators, not just the
ownership of the company but really who are the STEM people
doing it and try to bring up, start there.
Ms. VELAZQUEZ. Thank you.
Chairman CHABOT. The chair would note that all the
witnesses responded in the affirmative.
I have one last question myself. As you can see, this is
being broadcast here, this whole hearing, internally on our
system here and actually on our website. Small businesses all
over the country have access to this, not just today but
whenever they would like to look at it. We are actually being
viewed probably by tens of people all over the country.
My question is this, for those consumers that may be
watching today or sometime in the future, could any of you
name--and you have named some of the products that have
actually come out of this--could you name any products that a
consumer out there might be able to relate to, either something
they might purchase or something that might make their life a
little bit better, get them someplace faster or more safely or
whatever? So whoever has something they would like to--Dr.
Portnoy?
Dr. PORTNOY. So I think the easiest recognizable technology
that the public will recognize is the Sonicare Toothbrush,
which was funded by SBIR technology and by biomedical.
Chairman CHABOT. You said the Sonicare----
Dr. PORTNOY. Sonicare Toothbrush. The electronic vibrating
toothbrush.
Chairman CHABOT. Okay.
Dr. PORTNOY. Funded under SBIR when it was a small company.
Chairman CHABOT. Thank you. Anybody else?
Mr. WILLIAMS. Qualcomm. Many people know of Qualcomm.
Seventy percent of the chips that are in all your iPhones are
developed by Qualcomm and that was started with SBIR. iRobot is
another one that a lot of people have their Roombas around and
all that was started with the DOD side, developed it for going
into caves, and then they transitioned it to commercial sector.
Chairman CHABOT. Very good. Doctor?
Dr. JOHNSON. In addition to Qualcomm, obviously, Symantec
is another example. It is a security company that was funded
initially with SBIR funding. And so Qualcomm and Symantec are
very large success stories.
I want to mention a couple that are very recent emerging
companies that I think people can relate to. There is a company
called Flow Design Sonics, which has developed a water
purification technology based on ultrasonic technology that can
take dirty contaminated water in and produce clean, drinkable
water out. It is a very useful technology and I think one that
is going to have tremendous impact as we move forward.
Chairman CHABOT. Okay. Mr. Smith, do you want to weigh in?
Mr. SMITH. I bring up EMILY again. It is interesting that
that technology is being used by fast water rescue teams in
America, and throughout the world. I have an enjoyable job
working with the best and brightest in the world. When you see
an engineer that has created a technical solution and see the
smile and the glow on their face, it only gets larger when you
look them in the eye and say, ``I know you saved lives.''
Chairman CHABOT. Thank you very much. We appreciate it.
I would like to conclude by saying that the SBIR and STTR
programs are good programs, but we can always do better as the
ranking member indicated in that particular area, and we can do
better, I think, in other areas as well. We will take the
suggestions that we have heard today and by the members here
and their questions that we have heard the responses and the
answers from you and try to incorporate that information into
the reauthorization legislation that we will be putting
together in the very near future.
We want to thank you all for your testimony. I ask
unanimous consent that members have 5 legislative days to
submit statements and supporting materials for the record. If
there is no further business to come before the Committee, we
are adjourned. Thank you.
[Whereupon, at 12:22 p.m., the Committee was adjourned.]
A P P E N D I X
[GRAPHIC] [TIFF OMITTED] T9446.001
Chairman Chabot, Ranking Member Velazquez and distinguished
members of the committee, thank you for inviting me here today
to discuss the Small Business Innovation Research and Small
Business Technology Transfer programs affectionately known as
America's Seed Fund.
Last month, SBA Administrator, Maria Contreras-Sweet
discussed the ``State of Entrepreneurship'' at NASDAQ's
Headquarters in Times Square. This unprecedented opportunity
gave SBA a wonderful platform to explain the importance of
small businesses to the American economy. The Administrator
highlighted the great value of the SBIR program and how it
harnesses America's ingenuity to solve big issues. The SBIR
program drives innovation in areas ranging from national
security to public health to food and space exploration. In the
financial tech capital of the world, SBIR was recognized as the
institution which creates and provides opportunity, through
initial seed investment, to tens of thousands of small high-
tech growth firms.
And NASDAQ is the proper place to begin a discussion of the
SBIR because it represents the ultimate aims of the program--
business growth innovation and job creation. Today we are going
to speak a lot about oversight, reporting and compliance but we
must not miss the point the return on investment from SBIR is
truly astounding. The combined market caps of just two SBIR
funded companies, Qualcomm & Biogen, is $120 Billion, triple
what American taxpayers have invested over the lifetime of
these SBIR programs. And our next generation of companies that
got started with SBIR funds are developing game-changing
technologies, like Mango Materials, headed by a female PhD from
Stanford, a company tackling waste-reduction through a novel
process of creating bio-plastics from methane waste and Made in
Space, a company pioneering the use of 3-D printing on the
International Space Station to support extended space
exploration.
Working to better organize and extend the impact of these
programs is a privilege for me. Many of you know me from the
rigor, success, and discipline I brought to the Navy SBIR
program. A little over a year ago, I was asked by SBA to lead
the federal wide policy and programmatic oversight for the SBIR
and STTR programs. I accepted that position and now make it my
personal mission to ensure we deliver a quality product to all
our stakeholders.
SBA works very closely with Agencies' Program Managers and
external stakeholders to ensure that the intent of Congress is
carried out in the operation of the programs. It is critical to
remember that although there is one SBIR program it is operated
11 different ways depending on the focus of each agency's
mission directives and goals.
The 11 agencies that participate in programs have
collectively awarded over 152,000 awards totaling over $40
billion dollars to America's small businesses. Since 2012's
reauthorization, the SBIR/STTR programs have annually provided
over $2.5 billion dollars of seed-funding, directly into the
hands of small businesses nationwide.
Thanks to this committee, the programs were reauthorized in
December of 2011. Since reauthorization, SBA successfully
issued 5 major interagency policy committee reports on
outreach, commercialization, award size flexibility, evaluation
frameworks, and SBIR.gov public and Government databases. We
implemented, with agency support, the 68 legislative changes
directed by the 2011 reauthorization. We commenced the
modernization, build-out, and maintenance of our SBIR.gov
business intelligence platform; coordinate and lead a highly
successful outreach campaign, hitting 22 states across the
country in 2015 via our SBIR Road Tours, Regional Summits, and
National Conferences. We have accomplished a great deal with
the limited budget and personnel resources allocated. But there
is more work to be done.
This committee asked the speakers to discuss potential
improvements to boost commercialization, improve data
collection and reporting while limiting paperwork burdens. I
have some summary thoughts on each of these.
Commercialization was improved by the 2011 reauthorization
but more should be done. Firms are severely limited in using
SBIR funds to support activities that help commercialize the
firms' products and services, like market assessments, patents,
and scale up. Agencies are still struggling to report, as
directed, Phase III award activity or any goals and incentives
that they have put in place to increase Phase III's. And we
need to look at ways for agencies, especially the DOD, to make
sure funds are available to pay for the needed Test and
Evaluation, or technology maturation phase, of SBIR Phase II
projects.
On the data collection, we are much better off than we were
in 2011. SBA and the agencies have all worked hard to implement
the many new data fields that Congress requested collect. I
strongly encourage all of you to visit SBIR.Gov to see the
amount of data that is now available. But this is still work in
progress and continues to require funding and time to get to
where we want to be.
Limiting paper work burdens continues to be a challenge
where I don't believe we have made much progress. While this
was a goal of the reauthorization, so too were the goals of
increasing the data collected and tools to help protect against
fraud waste and abuse. A big challenge here is that most
agencies still require small businesses to apply using the same
processes that their major Universities and large businesses
do. There are some organizations, like NSF with its FastLane
site and the DOD, that are building tools that reduce the
efforts for both the firm and the agency. But more can and
should be done to help standardize the proposal template and
submission process. I also think we need to focus on the gap
between proposal submission to award, especially between Phase
I and II.
As SBA's Director of Innovation and Technology, I will
continue to work closely with our sister agencies to make sure
the SBIR/STTR programs are the top priorities across the
federal government. I will hold agencies responsible for the
allocations required by statute. And I will continue to work
with you to improve these programs. They are true gems, and we
must make sure our small businesses know about these
opportunities.
[GRAPHIC] [TIFF OMITTED] T9446.002
Mr. Chairman and Members of the Committee, thank you for
this opportunity to testify regarding the Small Business
Innovation Research (SBIR) and Small Business Technology
Transfer (STTR) programs at the National Science Foundation
(NSF). My name is Barry Johnson, and I am Director of the
Division of Industrial Innovation and Partnerships in the NSF
Directorate for Engineering. In this role, I have oversight
responsibility for the SBIR and STTR programs at NSF. For ease
of communication I will use the term ``SBIR program'' to refer
to the collective SBIR and STTR programs.
The SBIR program is an integral part of the NSF strategy to
stimulate innovation and address societal needs through the
commercialization of the results of research. We fund small
businesses at very early stages, when the technology risk is
high and before the private sector is normally willing to
invest. Since NSF is not the ultimate customer of the
innovation stimulated by the SBIR program, the NSF SBIR
research topics are oriented to the needs of the marketplace
and the nation as a whole.
All companies that receive NSF SBIR funding first receive
Phase I funding. Phase I funding can be up to $225,000 for a
period of performance ranging between six and 12 months. All
Phase I grantees are eligible to apply for Phase II awards to
conduct expanded research efforts to complete technical
milestones as a pre-requisite for further commercialization.
Phase II award size can be up to $750,000 for a period of up to
two years. Proposals for Phase II funding require a
commercialization plan in addition to a technical research
plan. Thus, when a business receives Phase II funding, it
already has a strategy in place for commercialization of the
technology.
SBIR Phase IIB
In 1998, NSF SBIR introduced a new supplemental program
called Phase IIB as a platform to stimulate NSF-funded active
Phase II grantees to attract private sector funding for further
technology commercialization. The Phase IIB proposal is
submitted while the company is conducting the Phase II
research. With Phase II research underway, the small business
is better positioned to attract investors because most of the
early stage technology risk has already been addressed with NSF
funding.
The Phase IIB program requires that third party commitments
be double the level of supplemental funding from NSF, up to a
maximum of $500,000 from NSF. The Phase IIB supplement was
initiated to further `fill the gap' between the funding from an
NSF Phase II grant and the funding ultimately required to
achieve successful commercialization. The supplemental funding
from NSF ranges between $50,000 and $500,000. Third party
investors include both public and private sectors. For
supplements over $250,000, the small business must participate
in a reverse site visit at NSF with its investor.
Additional Support
In addition to providing funding, we also assist our
awardees by providing them with an educational component based
in part on the NSF Innovation Corps (I-Corps) program that
helps entrepreneurs and their small businesses understand
market needs and customers, thus increasing their chances of
successfully commercializing new technologies. The NSF SBIR
program is also staffed with a team of program officers with
strong technical backgrounds in the areas supported by the
program and with business experience in large and small
organizations. The SBIR program officers generate the topics,
review the proposals, manage the awards, and provide
significant mentoring for the grantees.
Commercialization Assessment
NSF monitors the commercial outcome of our Phase II
awardees and has found that 32% of the NSF SBIR grantees were
fully successful in that they have at least $1 million in
revenue 6 years after completing the NSF SBIR Phase II award.
Companies note strong intellectual property positions, strong
academic collaborations, and strong ties to market leaders as
major reasons for success. The success rate for companies
receiving Phase IIB awards using this same measure was 65%. The
impact of the Phase IIB program on success rates is thus very
significant. The National Academies, in their recent report on
``SBIR at the National Science Foundation,'' found similar
commercialization impacts of the NSF Phase IIB program.
Mr. Chairman, this concludes my testimony. On behalf of the
National Science Foundation, the SBIR program and our awardees,
I want to thank you for this opportunity to highlight a program
that provides small businesses with the means to keep America
on the forefront of innovation. I would be pleased to provide
any additional information that would be useful to you.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
NATIONAL INSTITUTES OF HEALTH
Commercializing on Innovation: Reauthorizing the Small Business
Innovation Research and Small Business Technology Transfer
Programs
Testimony before the
House Small Business Committee
Matthew Portnoy, Ph.D.
Director, Division of Special Programs
NIH SBIR/STTR Program Manager
Office of Extramural Programs
Office of Extramural Research
Office of the Director
National Institutes of Health
March 2, 2016
Good afternoon, Chairman Chabot, Ranking Member Velazquez
and Members of the Committee. My name is Dr. Matthew Portnoy
and I am the Director for the Division of Special Programs
within the Office of the Director's Office of Extramural
Research at the National Institutes of Health (NIH), and the
Coordinator for the Department of Health and Human Services
(HHS) SBIR and STTR Programs. Thank you for the opportunity to
discuss the Small Business Innovation Research (SBIR) and Small
Business Technology Transfer (STTR) programs at the NIH, and
the role they play in stimulating innovation and our economy. I
would like to note that my remarks will primarily focus on NIH
because our agency represents 98 percent of the Department's
programs, however my office coordinates closely with the
Centers for Disease and Control and Prevention (CDC), the Food
and Drug Administration (FDA), Administration for Community
Living (ACL), and the Administration for Children and Families
(ACF), our sister HHS agencies that also fund SBIR and STTR
programs. Among the 11 Federal departments and agencies that
participate in these programs, the NIH is the second largest
funder, and the largest Federal supporter of biomedical
research. The SBIR/STTR programs continue to be critical to
feeding the innovation pipeline that promises to deliver the
medical advances of tomorrow and have complemented NIH's
mission to advance science while bringing new health care
solutions to the public.
Importance of the SBIR/STTR Program at NIH: Igniting
Imaginations and Spurring New Discoveries
The NIH SBIR/STTR programs are ideally suited for creating
research opportunities for U.S. small businesses to stimulate
technological innovation. Part of a complex innovation
ecosystem, these programs provide dedicated funding for U.S.
small businesses to conduct early-stage research and
development (R&D) to explore the feasibility of innovative
ideas that may eventually result in products or services that
will lead to better health for everyone. The NIH SBIR/STTR
programs are one means by which NIH Institutes and Centers
(ICs) accomplish their R&D objectives. A key feature that sets
SBIR/STTR apart from other NIH programs is a focus on
commercialization of the results of research. Thus, the
programs serve to supplement the basic and applied research
programs of NIH.
Types of research NIH supports under SBIR/STTR
Examples of the types of research that NIH supports through
the SBIR/STTR programs include, but are not limited to: drug
discovery, drug and pharmaceutical development, medical
devices, biosensors, nanotechnologies, proteomics, imaging,
bioengineering, behavioral research, health services, and other
technologies that enhance health, lengthen life, and reduce
illness and disability. Researcher-initiated ideas are the
cornerstone of the NIH research portfolio, including projects
supported by the SBIR/STTR program. Examples of successful NIH
SBIR-funded technology includes the Lift Labs'
LiftwareTM that creates stabilizing technologies to
help people with Essential Tremors and Parkinson's disease and
Senestech, which has technology to manage rodent populations
using a non-toxic approach that limits reproduction.
NIH SBIR/STTR Program Reauthorizing Implementation Overview
I am pleased to share with you today that the
implementation of all of the changes included in the SBIR/STTR
Reauthorization Act of 2011 is complete. I will now provide you
with a brief update on our work to date.
SBIR/STTR Funding: In accordance with law, the NIH
increased its set-aside for the SBIR and STTR programs to 3.0
and 0.45 percent, respectively, of its extramural research and
development budget in Fiscal Year (FY) 2016. Since the
reauthorization, the overall budget for the programs has
increased from $680 million in FY 2011 (pre-reauthorization) to
the current FY 2016 minimum set-aside of $877 million. That is
an increase of nearly $200 million that is available to small
businesses working in many different technology areas across
the country. Throughout, NIH and HHS continue to meet and
exceed the required set-asides each year, as found by annual
GAO reports. In FY 2015, the success rates of our both our SBIR
and STTR grant programs, representing 90 percent of the
portfolio, range from 15-16 percent for Phase I and 30-35
percent for Phase II. This included funding more than 1,000 new
awards, and is in line with historical rates as well as with
rates from other agencies. Our first year of the Direct Phase
II SBIR pilot was FY 2015 and allows applicants to apply and
receive a Phase II, if they have demonstrated they have done
the Phase I equivalent with other funds. In FY 2015, we had a
success rate of 19 percent and made 65 Direct Phase II awards.
Increased Outreach Efforts: We have bolstered and
diversified our SBIR/STTR outreach efforts the past several
years with the intention of further diversifying the SBIR/STTR
programs. As required under the reauthorization, we continue to
partner with the NIH Institutional Development Award (IDeA)
program \1\ to reach underserved small businesses in IDeA
states, and have increased outreach to women-owned and socially
and economically disadvantaged businesses. During FYs 2013-
2015, we have reached over 24,400 individuals from all 50
states and the District of Columbia and Puerto Rico. This
includes outreach to more than 940 women-owned small businesses
(WOSB) and 650 socially and economically disadvantaged small
businesses (SDB), as well as efforts targeting all 23 IDeA
states and Puerto Rico. Our outreach efforts include: revamping
our website and using social media; participating in the SBA
Road Tour; and engaging state-based economic development
centers and professional organizations that reach women and
minority entrepreneurs. Through these and other efforts, we
anticipate increased applications from these groups, further
diversifying the SBIR/STTR Programs.
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\1\ The Institutional Development Award (IDeA) program broadens the
geographic distribution of NIH funding for biomedical and behavioral
research. See more at: http://www.nigms.nih.gov/Training/IDeA/Pages/
default.aspx.
SBIR Direct Phase II Pilot, Commercialization Readiness
Pilot Program and Phase 0 Proof of Concept Centers: These three
new provisions from the 2011 Reauthorization Act have been
successfully implemented. NIH issued its first Direct Phase II
SBIR solicitation in 2014 and made our first awards in FY 2015.
Other Direct Phase II solicitations have since been issued. The
community has responded positively to these solicitations and
success rates, as predicted, track along with Phase I. NIH and
CDC recently launched their Commercialization Readiness Pilot
Program (CRP) in the fall of 2015. The CRP program allows us to
make follow-on awards to Phase II small business for additional
technical assistance or R&D to be done was they work towards
commercialization. A pair of CRP solicitations was issued and
we just had our first receipt date for applications in January
2016 with awards to be made this summer.\2\ While the results
of the pilot will take some time to determine, based on the
number of applications received, there is demand for this new
program from the small business community. NIH has also
implemented the STTR Phase 0 Proof of Concept Centers provision
through the NIH Research Evaluation and Commercialization Hubs
(REACH) program.\3\ NIH issued three awards in 2015 to the
University of Louisville (Louisville, KY), the University of
Minnesota, and the Long Island Bioscience Hub (a consortium of
Stony Brook University, Cold Spring Harbor Labs, Brookhaven
National Labs, and Feinstein Institute for Medical Research at
Northwell Health Systems). A program Kick-Off meeting was held
in April 2015 to share best practices learned from the NIH
Centers for Accelerated Innovations (NCAI), a similar program
funded by the NIH National Heart, Lung, and Blood Institute and
the National Institute on Drug Addiction and co-funded by the
Phase 0 authority. The REACH Hubs and NCAI Centers are working
together to create a nationwide proof-of-concept network of six
hubs/centers comprised of 20 high impact research institutions.
The first major accomplishment of this new network is a
preliminary agreement with several pharmaceutical company
partners to facilitate technology transfer and industry
engagement.
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\2\ See https://sbir.nih.gov/engage/news#dec4
\3\ See http://grants.nih.gov/grants/guide/rfa-files/RFA-OD-14-
005.html.
Venture-backed Small Businesses: In 2013 and 2014, NIH and
CDC respectively exercised their authority to allow small
businesses that are majority owned by multiple venture capital
companies, hedge funds and private equity firms to apply for
SBIR funding. We received the first applications in late FY
2013 and have made the first awards in FY 2014. The demand for
this flexibility is quite low (less than 1 percent of SBIR
applications and awards) and we will continue to monitor it
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closely over time.
Shorten Time to Award: We are strongly committed to
shortening the time from application receipt to award. We have
implemented a variety of measures in the past year in all
aspects of our receipt to award cycle designed to shorten this
time period and are adjusting these as needed. In FY 2015,
NIH's average time from receipt to notice of intent to award
was less than 200 days, well below the 12 month requirement,
and we anticipate this number to fall over time. We are working
to be responsive to this important small business need, while
at the same time maintaining the meritorious nature of our
mandated two-tiered peer review process and meeting
congressional expectations.
Administrative Funding Pilot: HHS is grateful for the
financial and human resources support provided through the
administrative fund pilot authority to enhance our management
of the SBIR/STTR programs in new and better ways and for the
recent extension of this authority through the end of FY 2017.
These funds have been critical so far in a number of areas
across the entire Department. In FYs 2013-2015, HHS has spent
$7M, $5M, and $10M respectively representing 0.9 to 1.5% of the
HHS SBIR set-aside per year towards a variety of activities
authorized by SBA and fulfilling congressional intent with
these funds. The Administrative Funding Pilot enabled us to
increase outreach efforts mentioned above, both in person and
by webinar, including participation and co-funding of the SBA
Road Tour; reaching small businesses in under-served states and
women- and minority-owned businesses; hiring new outreach
staff; streamlining our award cycles, including hiring new
staff; increasing support for commercialization in several
areas; conducting program analysis for increased efficiency;
ensuring accuracy and timeliness of meeting reporting
requirements; and providing support for new programs to name a
few. These activities would not have been possible without the
additional funds under the pilot and would likely need to be
severely curtailed or eliminated without extended or permanent
funding.
Program Flexibility is Key: One Size Does Not Fit All
I would stress that HHS attributes the success and
effectiveness of its programs to several factors, the most
significant of which is a flexible and proactive approach that
adapts to the changing nature of biomedical and behavioral
research while maintaining a highly competitive and effective
program.
Examples of program flexibility include the ability to
propose research projects in fields that have the most
biomedical potential; the ability for an applicant to resubmit
an unfunded application; and the abi8lity to fund Phase I and
Phase II awards at appropriate budgets that may exceed the
established guidelines if the science proposed warrants such an
exception to ensure successful outcomes. The NIH SBIR Phase II
average award size in FY 2014 was $1.3 million.
Biomedical research presents a unique set of challenges
that require appropriate resources to commercialize the next
set of discoveries.
In addition to the SBIR/STTR awards and the above mentioned
newly implemented programs, HHS also has a suite of funding gap
and technical assistance programs to help companies accelerate
their projects forward into the next stage of R&D development
and help them navigate the period between discovery and
commercialization. This includes our Niche Assessment Program,
Commercialization Accelerator Program, and a life-science
focused pilot of the National Science Foundation's (NSF) iCorps
program. Thus we help companies grow into sustainable
businesses and leverage our investments in the long run.
Conclusion
In conclusion, I want to emphasize that flexibility is
critical at a time when science is changing rapidly, becoming
more complex, more interdisciplinary, and resource intensive.
The SBIR and STTR programs seek to fund the most scientifically
promising projects for which private and public funds are not
traditionally available. Also, as a responsible steward of
taxpayers' dollars, we strive to leverage HHS's portfolio
across the biomedical enterprise.
This concludes my statement. Thank you for your attention
and I look forward to answering any questions you may have.
TESTIMONY BEFORE
THE HOUSE COMMITTEE ON SMALL BUSINESS
WEDNESDAY, MARCH 2 2016
-by-
ROBERT L. SMITH
DIRECTOR, DEPARTMENT OF THE NAVY
SMALL BUSINESS INNOVATION RESEARCH (SBIR)
AND
SMALL BUSINESS TECHNOLOGY TRANSFER (STTR) PROGRAM
Chairman Chabot, Ranking Member Velazquez, and
distinguished members of the committee, thank you for the
opportunity to appear before you today to discuss Small
Business Innovation Research (SBIR) and Small Business
Technology Transfer (STTR). The Department of the Navy greatly
values our SBIR/STTR program, because we are taking a great
program and making it better by improving the business of the
science. Small business and industry value our program because
of continuous outreach to create new business and science
opportunities.
Through SBIR/STTR, American small businesses throughout
your States have proven over and again their ability to provide
lean, agile and innovative solutions to warfighter
requirements--to help our Service deal with the big challenges
of its defense and humanitarian missions. As Mr. Sean Stackley,
Assistant Secretary of the Navy for Research, Development and
Acquisition (ASN RDA) said, ``Small Business and a competitive,
healthy Small Business industrial base are vital to the long
term success and affordability of the Department as well as to
our national security. The evidence is overwhelming that where
affordability is paramount, a strategy that includes Small
Business creates more affordable outcomes and promotes
innovation and technical advancement.''
Two examples of outstanding Navy SBIR/STTR contributions to
our Military and our Nations are EMILY and Automated Celestial
Navigation:
The Emergency Integrated Lifesaving
Lanyard--called EMILY--is a robotic lifeguard deployed
world-wide by Hydronalix, a rural Arizona company.
Several of EMILY's technologies derive from a 1991
Office of Naval Research STTR project to track whale
migration. The tracking system, reconfigured as the
Silver Fox Unmanned Air Vehicle (UAV), was deployed in
2007 to provide convoy protection to Marines in Iraq,
saving lives. The same basic technology package,
reconfigured as EMILY, is supporting first responders
throughout the U.S. and other nations, and saving lives
today in the Mediterranean Sea refugee crisis.
Trex Enterprises' Automated Celestial
Navigation (ASN) system provides a solution in GPS-
denied environments through a fully automated star
tracker for imaging individual stars both day and night
to enhance navigation capability. Initially focused on
Navy challenges, ASN attracted attention across the
government; the result being a fellow agency ordering
15 systems, with applications in crime fighting and
drug interdiction.
Over the last six years, using its non-SBIR funds, the Navy
has invested an average of over $500 million per year in SBIR/
STTR technologies. This investment, we believe, leads the
Department of Defense and the federal government.
There are four primary factors that have made the Navy's
SBIR/STTR program successful:
Culture--our Naval acquisition community
considers SBIR/STTR part of the solution for delivering
quality innovation to our warfighters, quickly and
cost-effectively.
Team--with an emphasis on delivering
solutions to warfighters, our dedicated professionals
make continual improvements to small business
performance through our proven SBIR/STTR Transition
Program and its annual Forum. These events further
partnering with industry and government, for even the
newest small firms.
Outreach--through SBA's SBIR ``Road Tours'',
SBIR conferences, and our own Command visits across the
US, we aggressively attract new entrepreneurs to the
Naval Research Enterprise.
Leadership--Secretary Stackley (ASN RDA) and
Rear Admiral Mathias Winter, Chief of Naval Research,
provide continuous advocacy for SBIR/STTR, as well as
guidance to our acquisition community about SBIR/STTR
engagement. Moreover, the Department of Navy guidance
is aligned with the Department of Defense Better Buying
Power 3.0.
The Navy's SBIR/STTR programs are a data-driven program
with meaningful metrics to mature the business of the science,
increase technology transition, and improve commercialization
outcomes. Looking at FY2015-FY2016 our SBIR/STTR program can be
measured in four critical areas: Phase I awards; awards to new
firms; reducing award delays; and Phase III investment.
Phase I awards--Phase I awards rebounded
after sequestration budgets to over 400 awards in
FY2014, and continued in FY2015 at the same level.
Awards made to new firms--despite the
intense competition for SBIR/STTR awards the Navy
averaged 22% of awards to first-tine winners in every
solicitation since 2010--due, we believe, to improved
outreach.
Reducing award delays--an Office of Naval
Research pilot on focused contracting--funded with the
``3% administration'' monies provided in 2011 SBIR
reauthorization--reduced Phase II award time from 112
months to 4.7 months and reduced award delay from 7.4
months to 0.9 months.
Phase III investment--$383 million in non-
SBIR/STTR dollars were invested in 142 projects in
FY2015, for an average of $2.7 million per project to
mature innovative technologies needed by Navy to
accomplish its defense and humanitarian missions.
Performance, as mentioned above, led former Under Secretary
of Defense for Acquisition, Logistics and Technology, Jacques
Gansler to tell the Senate Armed Services Committee recently
that SBIR/STTR should be made a permanent program. The
Department of the Navy continues to week improvements in our
program to seek a more diverse vendor base, increase small
business integration into Navy business, and leverage small
business advances for Navy requirements. I look forward to
working with you and your staff regarding the importance of
SBIR/STTR authorities.
March 3, 2016
VIA E-MAIL
Mr. John Williams
Director
Innovation and Technology
Office of Investment and Innovation
United States Small Business Administration
409 3rd Street SW
Washington, DC 20416
Dear Mr. Williams:
In order to have a complete record for the hearing titled,
``Commercializing on Innovation: Reauthorizing the Small
Business Innovation Research and Small Business Technology
Transfer Programs'' held on March 2, 2016, the following
question is being submitted for your response. Please provide
your response by March 17, 2016 to the attention of the
Committee's clerk, Delia Barr, at [email protected] for
inclusion in the hearing record.
It appears that the Federal Agencies make decisions
regarding the exemption of individual agencies from the
SBIR program without regard to any protocol that
requires SBA oversight. The FAA is exempt from the DOT
program because of an amendment to the DOT FY 1996
Appropriations Bill. DOD exempts Intelligence and Navy
Nuclear Reactor programs based on other statutory
authorities.
Should the Committee amend the SBIR statute to
include the proper authorities for SBA to provide
guidance and oversight on Federal agency exemptions
from the SBIR program?
Thank you for your participation in the hearing and your
timely reply.
Sincerely,
Steve Chabot
Chairman
Response to Question from Hon. Steve Chabot
Exemptions from SBIR require Congressional action. SBA does
not support exemptions in the program as it makes it
challenging for SBA and GAO determine if an agency is setting
aside the proper amount. Once an exemption is passed into law
there is little SBA can do about it and thus SBA does not
believe amending the SBIR statute to include authorities for
SBA to provide guidance and oversight on Federal agency
exemptions from the SBIR program will help.
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