[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
FIELD HEARING IN LYNN, MA: COMMERCIALIZING ON INNOVATION: REAUTHORIZING
THE SMALL BUSINESS INNOVATION RESEARCH AND SMALL BUSINESS TECHNOLOGY
TRANSFER PROGRAMS PART II
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 8, 2016
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-048
Available via the GPO Website: www.fdsys.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
99-447 WASHINGTON : 2016
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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
MIKE BOST, Illinois
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, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Ms. Judy Kennedy, Mayor, City of Lynn, MA........................ 1
Hon. Richard Hanna............................................... 2
Hon. Seth Moulton................................................ 3
WITNESSES
Mr. Walter M. (Jerry) Bird, President, MassVentures, Boston, MA.. 6
Charles E. Kolb, Ph.D., President, Aerodyne Research, Inc.,
Billerica, MA.................................................. 8
B. David Green, Ph.D., President and CEO, Physical Sciences Inc.,
Andover, MA.................................................... 9
Ms. Ann Eskesen, President, Innovation Development Institute LLC,
Swampscott, MA................................................. 11
APPENDIX
Prepared Statements:
Mr. Walter M. (Jerry) Bird, President, MassVentures, Boston,
MA......................................................... 21
Charles E. Kolb, Ph.D., President, Aerodyne Research, Inc.,
Billerica, MA.............................................. 23
B. David Green, Ph.D., President and CEO, Physical Sciences
Inc., Andover, MA.......................................... 26
Ms. Ann Eskesen, President, Innovation Development Institute
LLC, Swampscott, MA........................................ 29
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
COMMERCIALIZING ON INNOVATION:
REAUTHORIZING THE SMALL BUSINESS
INNOVATION RESEARCH AND SMALL
BUSINESS TECHNOLOGY TRANSFER
PROGRAMS, PART II
----------
TUESDAY, MARCH 8, 2016
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and the Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:00 p.m., at
the Lynn Massachusetts City Council Chambers, 3 City Hall
Square, Lynn, Massachusetts, Richard Hanna [chairman of the
Subcommittee] presiding.
Present: Representative Hanna.
Also Present: Representative Moulton.
Ms. KENNEDY. Good afternoon, everybody. My name is Judy
Kennedy. I am the mayor of the City of Lynn, Massachusetts, and
we are so proud to be able to host this field meeting on behalf
of Congressman Hanna and Congressman Moulton.
I would just like to tell you a little bit about the SBIR
Program that will be discussed today. The Small Business
Innovation Research Program, which is known as SBIR, is a
highly competitive program that encourages domestic small
businesses to engage in Federal research and research and
development, that has the potential for commercialization.
Through a competitive awards-based program, SBIR enables small
businesses to explore their technological potential, and
provides the incentive to profit from its commercialization. By
including qualified small businesses in the Nation's R&D arena,
high tech innovation is stimulated, and the United States gains
entrepreneurial spirit as it meets its specific research and
development needs.
I am so pleased that today's hearing is going to be chaired
by Congressman Richard Hanna from New York, who is here
visiting with us today, as well as our own congressman from the
6th District, Seth Moulton. It is very nice to see this
bipartisan cooperation. With everything that goes on in
Washington and the stories we hear, you would think that this
would be a rare sight. And I am truly hoping that it is not,
and I am hoping that more of our congressmen and women will
follow the lead of these two fine gentlemen.
So, again, welcome to all of you, and I would like to turn
this hearing over now to Chairman Richard Hanna. Chairman
Hanna?
Chairman HANNA. Thank you, Mayor. Thank you, everyone. I
call this hearing to order.
Again, I want to thank you all for being here. It is a
pleasure to be here. I have never seen a city hall as nice as
this in my life, and I have visited a lot of them. It really
shows the foresight of the people who built it to be a
wonderful auditorium, and it is just great.
Today we are holding the second of two hearings our
Committee has conducted this month concerning the
reauthorization of the Small Business Innovation Research and
Small Business Technology Transfer Programs, also known as
``SBIR'' and ``STTR.''
Before I begin, though, I want to thank our ranking member,
Mr. Moulton, for inviting us to be in his district today. In
the short time we have served together in the House, I have
found him to be a tenacious advocate for his constituents and
for the causes he cares about. I would expect nothing less from
a marine, especially one with his pedigree. Although we have
only worked together for about a year on the Small Business
Committee, he has shown a great willingness to work across the
aisle, find solutions for the challenges facing America, and
further improve small businesses climate. I am very happy to be
here with him, and I can say that honestly. It is not just
rhetoric. I have watched Seth work, and he is a very bright and
dedicated individual.
Innovation is the engine that drives our economy.
Technological breakthroughs in entrepreneurship build our
economy by finding state-of-the-art solutions to difficult
problems. 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.
This is why programs like SBIR and STTR are so very, very
important. Their purpose is to increase government of small
businesses that conduct R&D with a focus on technology and high
commercial potential. By including small businesses in the
Nation's R&D effort, SBIR and STTR awards stimulate innovative
new technologies that help Federal agencies in a wide variety
of areas. These programs are important because the awards go to
small innovators who have always been at the cutting edge of
science and technology, like the folks here on our panel today.
You are the ones that have the ideas and the willingness to
take big risk and search for big rewards. Maybe you quit your
job and started your business in your garage. Maybe you worked
on the side with one of your colleagues to turn an idea into
reality. Whatever your individual story is, the entrepreneurial
spirit is what drove you to create this new technology that
your country benefits from.
The next big thing does not just materialize. It happens
with a lot of late nights and even more sweat. Ideas matter,
but it is executing those ideas is what is most important.
Obviously not every idea is a good one. I work in Congress.
I've seen this firsthand. But the long odds rarely discourage
entrepreneurs. The successful ones keep driving forward,
thinking, inventing, and renewing our economy in the process.
That is why these programs are so vital, whether it is a
new software system, or tracking contract payments, a new
medical device to help with cancer treatment, or a new piece of
technology that saves lives on the battlefield, the SBIR and
the STTR programs have consistently delivered results across
many, many agencies.
These programs were last authorized in 2011. In order to
give entrepreneurs stable predictability, we are getting a jump
start on reauthorizing them before next year's deadline, which
is part of why we are having this hearing and had the last one
a couple of weeks ago.
Today we have a very distinguished panel of private sector
witnesses who have participated in the programs or worked with
small firms that have participated in the programs. We look
forward to hear from your experiences and listening to your
suggestions on how we can make these good programs even better.
Again, I want to thank you for allowing me the privilege of
being in your community. I would like to yield now to my good
friend, Ranking Member Mr. Moulton, for his opening remarks.
Mr. MOULTON. Thank you, Mr. Chairman. Let me first thank
you for driving all the way out here from New York to be with
us here in the 6th District in Lynn, and to tangibly thank you
for your trip. I have a small gift for you.
Chairman HANNA. Oh.
Mr. MOULTON. It is not a product of the SBIR program, but
it is a proud product of Lynn that makes your trip entirely
worthwhile. It is, of course, a big tub of marshmallow fluff.
[Laughter.]
[Applause.]
Chairman HANNA. I always thought this stuff came from
space.
[Laughter.]
Well, thank you. Thank you very much.
Mr. MOULTON. Mr. Chairman, your leadership on this
Subcommittee and your leadership on the Committee at large
means a lot to me as a freshman, and as a freshman who is in
the minority and was elected on a platform of bipartisanship,
but has had to go to Washington to figure out how to actually
make that happen. And I will tell you, I found a welcome home
on the Small Business Committee.
I passed my first bill in the House of Representatives out
of the Small Business Committee, which is because of the
bipartisan working spirit that we have on that Committee. And
it is thanks to people like you who are willing to across the
aisle, even when it may, you know, create trouble in primaries
back home or whatnot, that I am able to do that. So thank you
very much for your leadership in this difficult Congress.
We are very glad to be here with you today to discuss the
SBIR and STTR programs. Since their establishment, these
programs have helped launch tens of thousands of successful
research projects, many of them right here in Massachusetts. In
the past 30 years, the SBIR and STTR programs have become major
sources of funding for small businesses, and on average, more
than $2 billion each year is awarded through these programs.
With these awards, companies in Massachusetts are working
on a wide array of research, from a business in Wilmington
working with the Navy to develop a smaller lightweight laser
module for NAVSEA, to a Cambridge firm designing a system for
modeling cyber behaviors to assess risk. Firms are researching
and developing products that have helped increase military
efficiency and minimize adversarial threats, and these are just
some examples coming out of the Department of Defense.
At HHS, another Massachusetts firm is developing a device
that provides compression to amputees with poor blood flow in
their limbs. And at the EPA, an awardee in Marlborough is
developing a nanofiltration system that targets emerging
contaminants in the water supply like pharmaceuticals and
pesticides. After today's hearings, a few SBIR participants
showcase their research and technology around the room, further
demonstrating the innovative solutions that businesses in the
6th District and beyond are coming up with to solve the
problems that agencies are facing today.
Not only do these discoveries aid government agencies, they
also help our communities by allowing small companies to be
innovative and think big. SBIR and STTR funded firms generate
economic growth and create job opportunities in local
communities. I look forward hearing the personal stories of our
witnesses as to how these programs have allowed them to
contribute to our community.
These programs were last reauthorized in 2011, and are set
to expire, as the chairman said, in 2017. It is the Small
Business Committee's goal to pass a reauthorization during this
Congress so as to provide both agencies and businesses the
certainty that these programs will continue.
Yet before we do so, it is important to take stock of the
most recent reforms and determine how we can improve these
programs to better suit small businesses. Last week the
chairman and I had the opportunity to hear from various
agencies about the administration of these programs and ways by
which they are making them more accessible to applicants. But
equally, if not more important, is feedback from the actual
small business owners who are participating in these programs.
The last reauthorization contained various provisions aimed
at commercialization, and I am interested to hear how the SBIR
and STTR communities have received these reforms. Additionally,
there have been several efforts made to diversify the
applicants to these programs. Unfortunately, there has not been
as much success on this front, so I am especially looking
forward to hearing from our panel to learn how we can get new
companies interested in the programs.
I hope that today's hearing can shed light on some of the
issues small businesses face in this program to help us
identify ways to improve these programs during the upcoming
reauthorization. As we have seen, Massachusetts SBIR and STTR
participants are leading the way in research, and I am
privileged to be here today to solicit their advice.
With that, I would like to thank the panel for their
testimony, and, again, thank Chairman Hanna for joining us here
in Lynn. Thank you, and I yield back.
Chairman HANNA. Maybe you would like to introduce your
witnesses.
Mr. MOULTON. It would be my pleasure to introduce our
witnesses. And I will start with Ann, Ann Eskesen, the
president of Innovation Development Institute located in
Swampscott. At the institute, Ms. Eskesen helps SBIR and STTR
participants bring their technology from the labs to the
marketplace. She is a long-time advocate of these programs and
we are happy to have her here today to share her expertise.
Next we have Dr. David Green, President and CEO of Physical
Sciences, Incorporated, located in Andover, who will today
testify on behalf of the New England Innovation Alliance. NEIA
is an informal association of small high-technology companies
in New England. It acts as forum for small businesses, allowing
them to share their experiences and challenges as they have
done business with the U.S. government. Dr. Green has a Ph.D.
from MIT in physical chemistry and is active in the R&D
operations of PSI, a company with approximately 200 active
programs annually.
Next, we are also joined by Dr. Charles Kolb, President of
Aerodyne Research, Incorporated. I am proud to say that
Aeorodyne is located in Billerica, right here in the 6th
District, and specializes in advanced sensor and software
projects. Dr. Kolb first joined Aerodyne in 1971 after
completing his Ph.D. in physical chemistry at Princeton.
He has authored or co-authored over 225 publications, and
has actively participated on various National Academy of
Sciences boards and committees related to atmospheric and
environmental science. I had the opportunity to speak with Dr.
Kolb in December at the SBIR/STTR Innovation Awareness Day, and
I am grateful that he is here today to share more about his
company. Thank you.
Lastly, we have Mr. Jerry Bird. Mr. Bird is the President
of MassVentures, located in Boston. Mr. Bird has over 25 years
of experience advising and financing companies, including 19
years working in venture capital. He has operated both as an
investor and an active partner in helping entrepreneurs build
their firms. We have heard from many small businesses that they
have difficulty accessing additional capital for their
research, so I look forward to hearing from Mr. Bird about what
businesses can do to attract investors.
Thank you all for being here today.
[Applause.]
If Committee members have an opening statement prepared, I
ask that it be submitted for the record.
We do not have lights for the 5 minutes. We do, okay. Got
it, right there in front. Okay.
So let me just explain the timing lights here in front of
us, familiar to those of us who spend time in Washington, but
certainly new to me this year. So basically you all have 5
minutes. The light will start out as green. When you have 1
minute remaining, the light will turn yellow, and then finally
at the end of your 5 minutes, it will turn to red. And try as
best you can, please, to adhere to the time limit.
Okay. Mr. Bird, why do we not start with you?
STATEMENTS OF WALTER M. (JERRY) BIRD, PRESIDENT, MASSVENTURES,
BOSTON, MASSACHUSETTS; CHARLES E. KOLB, PH.D., PRESIDENT,
AERODYNE RESEARCH, INC., BILLERICA, MASSACHUSETTS; B. DAVID
GREEN, PH.D., PRESIDENT AND CEO, PHYSICAL SCIENCES INC.,
ANDOVER, MASSACHUSETTS; AND ANN ESKESEN, PRESIDENT, INNOVATION
DEVELOPMENT INSTITUTE LLC, SWAMPSCOTT, MASSACHUSETTS
STATEMENT OF WALTER M. (JERRY) BIRD
Mr. BIRD. Thank you. I want to thank Chairman Hanna and
Congressman Moulton for inviting me to testify today on the
critical need to reauthorize the SBIR/STTR program. My name is
Jerry Bird and I'm the president of MassVentures.
MassVentures is a quasi-public venture capital firm based
in Boston and focused on fueling the Commonwealth's innovation
economy by funding early-stage, high-risk, high-growth
potential Massachusetts startups as they move from concept to
commercialization. We were honored last year to receive the
prestigious Tibbetts Award from the SBA, recognizing our
significant role in driving innovation and creating new jobs
through the SBIR and STTR programs.
When MassVentures was formed 38 years ago, it was the first
program of its kind in the country. As if often the case here
in Massachusetts, our model and our mission, which is to
provide start-ups with early funding, guidance in operations,
finance, and sales, and position them for additional rounds of
funding from the traditional VC sources, has now been
replicated across the country and across the world.
In our 38 years, MassVentures' portfolio companies have
raised an additional $1.1 billion in other investors' capital.
They've directly created 7,500 jobs in Massachusetts, and 16
have gone public. In many cases, these companies got going
based on SBIR/STTR funding.
The SBIR/STTR programs have played a vital role in
harnessing the immense human capital of Massachusetts' higher
education, medical and research institutions. The programs
provide opportunities to small firms which create great ideas,
but are unable to attract traditional venture capital funding,
or need seed funding to pursue those projects because the
private sector has decided they are too high-risk, too early,
or not lucrative enough. However, it's exactly these high-risk,
high-reward projects that truly drive innovation in
Massachusetts.
There is no question SBIR/STTR was been effective in
allowing concepts to begin the road to commercialization, but
even after 2 years of funding, many companies weren't ready.
Research was still ongoing, prototypes needed testing, or often
the company's founders weren't ready to juggle innovation with
the everyday demands of operations, finance and sales. It's
hard to master your elevator pitch when you're spending all
your time in a lab trying to create something that's never been
created before.
The Federal government has played its role. SBIR/STTR has
brought many companies to the verge of commercialization, but
there were still too many instances where we were left asking
what could've been. A gap remained.
In 2012, we created the SBIR Targeted Technologies
program--START--to bridge that gap and ensure growing
Massachusetts companies would be able to commercialize
technologies that had been developed under SBIR/STTR contracts.
Recognizing that innovation, invention, and disruption take
time, the START program provides up to 3 additional years of
funding for these SBIR projects.
Stage 1 companies get $100,000 grants. A year later, stage
2 companies receive $200,000 grants, and the third year, two
companies are eligible for $500,000 grants. So the most
successful ones received $800,000 strictly to commercialize. In
just 4 years, START has provided $9 million in grant funding to
40 deserving companies. These companies have already gone on to
raise an additional $138 million of capital, and seen at least
a 30 percent employee growth in Massachusetts.
We've created an ecosystem of more than 200 companies,
reviewers, service providers, and advisors. For example,
Energid of Burlington and Cambridge started as a robotic
software company serving that created software to control the
robotic arm on the space shuttle. It was clear that there was a
broader application for their software and expertise, so it
took the risk of creating a small arm-sized robot to
demonstrate the power and potential of its software. In 2013,
we awarded it a stage 1 grant.
The company has gone on to sell its robots to early
adopters, and is now in discussions with major global
corporations and poised to sell thousands of units. Again,
technology developed to control the robotic arm of the space
shuttle is now to assemble components and even pick oranges. A
Massachusetts-based software company, supported through
MassVentures, the SBIR program, and START, Energid has emerged
as a leading robotic technology company.
START has proven innovation can happen anywhere. While we
evaluate them as investment professionals, there is nonetheless
a remarkable geographic diversity among START winners.
Companies outside of Boston and Cambridge that might have
otherwise lacked the time, resources, support, or network
necessary for success now have it. There are START companies in
Barnstable, Canton, Charlton, Georgetown, Newburyport, and
Wilbraham, and they all have the potential to be economic
anchors in their community.
Just as MassVentures was, we believe the START program
should serve as a national model for how States can best
leverage the Federal government's investment through the $2
billion a year coming out of the program. These programs are
essential in order to allow American scientists and researchers
to innovate, invent, and discover the technologies of tomorrow.
But States must also do their part to build on the progress
made through the SBIR/STTR funding, and ensure those
technologies of tomorrow are not always a day away.
We encourage you to reauthorize the SBIR/STTR program so
Massachusetts can continue to work with the Federal government
to grow and commercialize world-changing companies. Thank you.
[Applause.]
Mr. MOULTON. Thank you very much, Mr. Bird.
Dr. Kolb?
STATEMENT OF CHARLES B. KOLB, PH.D.
Mr. KOLB. Mr. Chairman and distinguished Ranking Member,
thank you for inviting me to testify today about the
effectiveness of the Small Business Innovation Research and the
Small Business Technology Transfer programs.
My company, Aerodyne Research, Incorporated, was founded in
late 1970 as a contract research organization focused on
improving the Nation's strategic defense systems. We have
subsequently broadened our range of expertise to include energy
technology and major environmental issues such as stratospheric
ozone depletion, ambient air quality, acid deposition and
climate change.
The SBIR program, started in 1982, and the STTR program,
started in 1992, have become major sources of federal R&D
funding for many scientists and engineers employed by small
businesses. However, the Federal agencies' expectations for
successful SBIR and STTR grants or contracts are significantly
higher than expectations for normal research funding.
SBIR and STTR funding is expected to produce the same level
of new scientific understanding and technological advances as
normal R&D funding, all properly documented in scholarly
articles and patents in most cases. However, SBIR and STTR is
also expected to produce an innovative product that either
solves a mission agency's designated need or can be easily
engineered to compete successfully in commercial markets.
Ideally both mission agency adoption and commercial sales
success are achieved.
At ARI we have adopted a strategy of using SBIR and STTR
funds to develop proprietary technology that we can use to
expand our own staff's research capabilities, then we sell to
our R&D peers worldwide. Our most successful tactic is to
develop new and better ways to measure both gas phase and small
aerosol particle pollutants in real time and with very high
sensitivity and specificity.
Starting in the mid-1990s we have used SBIR and STTR funds
to develop three lines of mobile, robust instruments that can
be used both in the laboratory and in field measurements to
measure the properties and concentrations of air pollutants.
Since 2000, the increases in the capabilities and sales of
these three instrument lines have evolved dramatically. From
2000 to 2015, our instrument sales have grown from less than a
million to over $14 million per year. In Fiscal Year 2015,
instrument sales provided 60 percent of our corporate revenue
with R&D projects supplying 35 percent.
Over the past 15 years, we have earned $80 million from
instrument sales to customers on six continents, with
approximately 80 percent of the sales outside the U.S., helping
our Nation's balance of payments. We have also hired a
significant number of instrument engineers and assembly
technicians to help develop, assemble, test and service our
instrument product lines.
We are proud of our scientific accomplishments as well.
During the Fiscal Year 2000 to 2015 period, we were supported
by other funding sources to perform over $18 million worth of
laboratory and field measurements using our instrument
products. Recent sponsored research projects have measured
methane and other pollutant emissions from oil and gas
operations, including fracking well pads, gas plants,
transmission pipeline compressors, and gas storage facilities
all over North America, including the recent Aliso Canyon gas
storage facility mega leak near Los Angeles. We have also
recently mapped air toxic pollution levels in poor
neighborhoods near the Houston Ship Channel, and measured trace
gas and fine particle air pollution levels in Beijing.
Our research staff contributes to our Nation's reservoir of
scientific knowledge. In 2015, ARI scientists published 75
peer-reviewed archival papers, most based on measurements using
our instrument products. We also received three U.S. patents
for innovations to improve instrument performance.
ARI has twice been named the Department of Energy's SBIR/
STTR Company of the year in 2006 and 2013. These awards
recognize our staff's contributions to DOE's environmental
research programs as well as our supplying national laboratory
scientists with important new research tools.
At our company and many hundreds of others, support from
SBIR and STTR programs has successfully stimulated the
production of the full range of scientific, technological, and
economic benefits envisioned when Congress creates these
programs. Reauthorizing them will serve our Nation well.
Mr. MOULTON. Mr. Kolb, thank you very much.
Dr. Green?
STATEMENT OF B. DAVID GREEN, PH.D.
Mr. GREEN. Yes, good afternoon, Chairman Hanna and Ranking
Member Moulton. Thank you for your interest in the SBIR program
and allowing our innovative companies to participate and share
their stories with you today.
SBIR represents America's seed capital and has created many
new companies, excellent high technology jobs, and many
publications and patents. Its success has not been duplicated
anywhere in the world.
The SBIR program funds concepts at a very early stage where
no other similar funding source exists. It allows the risk
takers to retain and reap the rewards of their dedicated
efforts. The government and the agencies are patient investors;
however, ultimately the investment is returned through taxes.
Recent studies by the National Academies and by the mission
agencies report its great success. Every government dollar
results in over $3 of revenue after the phase 2 program.
SBIR is a great program, but I wish today to make three
suggestions for your consideration to make it even better.
The SBIR program has demonstrated its value over the past
33 years. Please make it permanent. A long-term charter for the
program allows for better agency planning and staffing. The 14
short-term continuations before the last reauthorization made
it difficult for the agencies to execute the program, and made
it impossible for the small businesses to maintain staff and to
advance their technologies.
Since reauthorization, the SBIR program managers and staff
at SBA and at all the agencies have shown great dedication and
commitment to making this good program even better, and to make
ever more companies aware of it existence, and we thank you.
My second suggestion is to increase the allocation to the
SBIR program. This program is budget neutral. Our request is to
shift more resources to the program that has proven its
effectiveness. Currently only 3 percent of the R&D funding in
Federal agencies is allocated to SBIR. I ask that you increase
that allocation gradually to 5 percent over the next decade,
and to focus the funds from that increase to maturing
technologies after the initial phase 2 program.
For years, many worthy technologies have died at the
conclusion of phase 2 programs because the technology, although
demonstrated, is not in a form recognized as viable by a
commercial company or by a mission agency. The gap has become
known as the Valley of Death for SBIR technologies. Too many of
them do not make it through to become viable commercial
products. Many receive some post-phase 2 funding, but it is too
little, too fragmented, and too restrictive.
The Commercialization Readiness Program created in the 2011
Reauthorization has begun to address this need. I urge you to
consider increasing the SBIR allocation and focusing it on
further maturation of promising technologies after phase 2.
My last suggestion is to make access to the SBIR program
easier so that a wider diversity of companies compete and win
programs. We all understand that it is not easy doing business
with the Federal government. Instructions are complex.
Submission is complex. Regulations are complex. The requirement
for a government-approved accounting system is a very large
barrier to new participants. We ask you to consider strongly
encouraging the agencies to use fixed price best efforts
contracts for phase 2 programs, with the prototype remaining at
the small business to enable its transition to a commercial
product. This will reduce the burden on both the companies and
the government contracting officers to a fraction of the level
that is needed in cost plus type contracts.
Fixed price will enable speedier contract awards and more
rapid advances in technology. The innovators will spend more
time on their technology rather than complying with the FAR.
Most importantly, this will encourage many new entities to
participate in the SBIR program.
Our employee-owned company, PSI, has successfully
transitioned many SBIR technologies. We find the fastest way to
move the technology to market. Just one example. Under NIH-NEI
sponsorship, PSI, working with clinical researchers, developed
a retinal tracking method permitting greatly improved eye
examinations. We partnered with a leading eye equipment
manufacturer, and they have sold 16,000 systems containing our
technology over the last 8 years, producing $1 billion in
revenues for that company, and also, more importantly,
providing better eye care for tens of million Americans.
We've also developed a variety of other technologies and
environmental monitoring. Through DNDO sponsorship, PSI has
implemented novel algorithms that vastly improve radiation
sensor performance at screening portals. And under Army
sponsorship, we have developed a small UAV to provide our
warfighters, law enforcement, firefighters with situational
awareness. This capability increasing national security and
already being used outside of this country, saving lives of our
military.
The SBIR program is one of the most successful in the
government. Today I have offered three suggestions to improve
this wonderful program. I ask you to please move to reauthorize
this program now, to increase its allocation, and to use
contracting methods that encourage new companies to
participate. SBIR's success is documented in the National
Academy studies. I ask you to reauthorize it to keep technology
innovation strong in America.
Mr. MOULTON. Thank you, Dr. Green.
Ms. Eskesen?
STATEMENT OF ANN ESKESEN
Ms. ESKESEN. Thank you, sir. First of all, I appreciate
your scheduling this hearing because it is a different type of
hearing, I think, than those that we've had previously, and for
giving me opportunity to be one those involved.
As you mentioned, I was part of the small group that was
involved in the development, and the passage, and the
implementation of the original enabling legislation. And that
means that I bring a very different perspective to this hearing
than some of those we've heard from individual awardees.
Clearly, as a long-time SBIR advocate, I strongly support
reauthorization, and I think the ideas you've heard mentioned
are ones very well worth consideration. But I'd also argue that
if we're truly to draw down the full value of what SBIR has
created, we must understand what that full value is and factor
it into our discussions. In my judgment from over 35 years of
SBIR involvement, SBIR is better understood not simply as a
small business program, but one with enormous, powerful, and
considerable impact in the debt of new technologies, new
businesses, and an economic development resource that should be
managed as such.
I might even argue, just as Roland Tibbetts who recently
died, the creator of much of SBIR's program structure, it is
probably one of the most important pieces of legislation the
Congress has ever passed. With hundreds of success stories and
so many studies by the National Academy and the GAO, that if
you stacked them up in front of me, you wouldn't be able to see
me.
It seems like the 23,000 companies that have been involved
in the SBIR have stories to tell that are enormously important
in their extent and in their diversity. But even after all this
debate and discussion, truly unique, what is important to
recognize is that what SBIR has created is half a million
graduate-level engineers and scientists making that population
probably the largest single concentration of technical talent
that exists anywhere.
When I was asked to testify, I was asked to include in my
testimony some mechanisms to educate you on some of those
program impacts, and I did that in a fair amount of detail, and
I will quickly go over some of it here. But what it comes down
to is that perhaps reauthorization is to argue that we live in
radically changed and changing times. And in a very real sense,
we're still managing SBIR as we did when we created it 35 years
ago. And it is important that in order to make decisions about
how we're going to change the program, we need to be basing
those decisions on actual. There's a novelty, making policy
decisions based on factual information.
A caveat: I am not suggesting in some of my recommendations
that SBIR is a causative agent. It isn't. SBIR funding has made
it possible for a whole lot of people, some here at this table
and others in the room, to do things that are quite
extraordinary. They got the tools that they needed to do the
job.
What I'm trying to argue is that the $43 billion you have
so far invested, and that's a term very carefully chosen, has
created an identifiable, verifiable pool of technical talent
and capacity that the VC community, evidence is clear, and the
major corporate community are already tapping into. We should
as a country be systematically mining and engaging this talent
to include moving away from the stovepipe type approach to
project management, which defines SBIR, to doing something
about the balkanization of the program that is now clearly
occurring where companies in one agency are not known in any
sense by any other agency, and all the agencies are now very
different in the way they operate.
When I organized the thoughts I put together for this
presentation, I looked up the term ``realize.'' I want you to
realize the value of what SBIR has created. The easy part is
you understand that there has been this enormous impact. The
second part, which is a new thought for many, is that
``realizing'' as a verb means drawing down and making a profit
from what it is you have created.
So what I've tried to do in the testimony I provide you is
give you an overview of the extent of venture capital
involvement in the SBIR program. We track every venture capital
transaction, and we now have solid data that $90 billion worth
of venture capital has already followed the $43 billion, but
has gone to a very small subset of the SBIR program.
We're the largest single creators of intellectual
property--on a daily basis, between 10 and 14 patents issued to
SBIR companies in the United States. That's 365 days a year, 7
days a week. We have an incredibly high, extensive activity of
M&A transactions. Nearly 9 percent of SBIR companies are being
acquired. They're being acquired by major and mid-source
corporations, who, for reasons I probably don't have time to
discuss in my 5 minutes, have enormously reduced their own
internal R&D capability, and are compensating for that lack of
capability by bringing in and engaging the small business
community.
We also provided you data to give you indication of the
employment impact that the SBIR community has had. We
collectively as a group, and the data is very solid, have
created, are responsible for almost 7 percent of all STEM jobs
in the United States economy, 20 percent here in Massachusetts.
Unfortunately, sir, less than 60 percent in the State of New
York.
What I'm trying to suggest is that we continuously track
the SBIR program, and in my testimony I gave you a list of some
of the things that we track. And what we're seeing is that SBIR
is a mirror. It's almost like a mirror for what's going on in
the economy overall, but it is also, when you break it out in
detail, gives you a clear indication of how the economy is
functioning. And our job becomes not simply to modify now the
program runs for those who are in it, but how it can be
effectively drawn down as the economic asset that it truly is.
Forward thinking of members of the Senate allowed us to get
the legislation passed for SBIR originally almost unanimously.
We hit the skids in the House. But the upshot was despite that,
we finished up getting the legislation passed. We were
subjected to the ultimate of torture, which was a 7-committee
sequential referral.
But after the legislation was passed, I was recruited by
the SBA to get out the word to the SBIR community potential of
the availability of this resource. And the second was to make
sure that the agencies who had been a primary source of the
opposition to the creation of the program were, in fact, in
compliance with the law.
That two-pronged requirement resulted in my doing what I
needed to do, which was simply to follow the money, and to keep
the SBIR record. And I have no intentions of that becoming my
life's work, but eventually that is what it's actually become.
So what I've given you in the full testimony is a clear
indication of how the money has flowed. One of the things that
we did do is we looked at things like understanding who's new
to the program and who isn't. And one of the charts, which I
hope you pick up on, if to give you clear indication that
despite, since the last reauthorization, an increase in the
availability of funding, the number of awards, the number of
companies that are involved in the program has dropped
precipitously.
And that precipitation, I'm suggesting, is partly to do
with the change in the rules when it came to who's eligible for
venture capital in the SBIR program. Venture capital has always
been a factor in the SBIR program, and I have a table in my
testimony that plots that by every single agency. But it's
startling when you realize that a full 61 percent of all of the
venture capital funded firms in the SBIR program have an NIH
connection.
What's interesting and not nearly so obvious is that there
is also a similar connection of something like 32 percent of
all those who are VC funded are in DOD. Those are very exciting
numbers, but as a practical matter, it also means that there
are huge percentages of companies that are not getting venture
capital, and whose access to the additional resources they need
are seriously curtailed.
One thing I will finish up on the VC component is that it
is important to recognize that, and we document this very
carefully, $1 in $6 invested by the venture capital community
in the United States is going to an SBIR company. Those guys
are not fools. They are going to where the quality is, where
the value is, and where the potential is. And we should very
proud of the fact that they're coming, but also very scared of
the fact that they're coming in such very large numbers.
I find myself asking the question, when we are funding
companies that are in receipt of major amounts of venture
capital, whom are we not funding where that company's access is
not into the venture capital funding which is available to so
many others. I mentioned that we have been very active in the
patent area and in the VC area, but one of the things I want to
move on to is the fact that the large corporations are
increasingly, for a whole lot of reasons I can explain,
downsizing their internal R&D operation, and coming in major
numbers to the SBIR program. The data I gave you on M&A shows
clearly who's buying SBIR companies, and it's predominantly the
major corporations.
There is a steady stream of people who are from major and
mid-sized corporations who are coming to SBIR because it is the
largest single concentration of technical talent. When we were
passing SBIR originally, 15 percent of engineers and scientists
with graduate-level degrees were employed in small firms. That
number is now 37 percent. 37 percent. And yet the amount of
money that we're getting in the SBIR program has not
substantially increased over that same time period.
What I also tried to do because you asked me to look for
talking points, and obviously I've run out of time, and so I'm
going to give these very quickly. We think there are lessons to
be learned from how the venture capital community managed their
portfolio that could be applied managing SBIR as a portfolio,
not the whole program, but let's try it out as a pilot. The
second is my judgment, based on what we're looking at right
now, is that the agencies have become much more risk averse
than they used to be. They are increasingly asking for projects
that have a near-term application and requirement, and we are
no longer doing the work, the call contact work, where Irving
Jacobs told you in Congress that SBIR funded their work at a
point in time when nobody else would give them the time of the
day. We're doing far less of that than we used to be doing.
We need to be looking at ways in which the SBIR community
has access to demonstration funding. There is in every agency a
pool of money that is designated for those regularly in receipt
of R&D funding to go on to the prototype development activity.
We don't have any sort of access, and a second phase to is,
frankly, not the answer which is what the last legislation did,
because that simply reduces the pool that's available for other
companies.
We need to empower the program managers to allow them to do
things that are different from the way that they have
previously been doing. Navy years ago, for example,
deconstructed a project for containership and security, divided
it into nine component pieces, recruited nine SBIR companies,
put them together as a team. And that technology is now the way
that the system for containership and security in the United
States is completely handled.
We should be doing more of these types of things, not
expecting the small firm to put the whole pathway to
commercialization, but to bring their talents to bear in team
type projects that are far more valuable. We need to empower
the SBIR program managers, probably the most dedicated group of
Federal employees you're ever going to find. Give them an
opportunity to try out ideas and not be looking over their
shoulders to see whether or not that will draw them trouble.
We need to encourage SBIR companies to look at other ways
of generating revenue. In the VC community, it is a commonplace
condition that the technology that you own has a broader set of
applications than you can apply, and so you license that
technology out and generate a revenue stream. We don't do that
in the SBIR program, and we should be doing that.
And here ends the lesson. Thank you.
[Applause.]
Chairman HANNA. Thank you very much. I will yield to
Congressman for the first question.
Mr. MOULTON. Thank you, Mr. Chairman. Ann, in our
compelling and lengthy testimony, you mentioned that there are
different agencies that oversee programs, and this is something
that we heard during our recent hearing in Washington, that not
all the agencies handle things the same, and the results differ
as well.
And so, I would like to ask the rest of the panel to
comment on any differences that you have seen among the
agencies' administration of this program. And where are there
lessons to be learned? Charles?
Mr. KOLB. I think as you know, Representative Moulton, in
addition to running Aerodyne, I have served since 2002 on the
National Research Committee that at Congress' request compares
the program's 5 largest agencies, and tries to identify best
practices and identify core practices, and encourage them to
learn from one another.
We find that, for instance, in some agencies, SBIR and STTR
programs are run really as a single entity. There is very
little distinguishing the two except for some rules about how
much money might go out to a non----
Mr. MOULTON. And is that a positive thing or negative thing
when they are run as----
Mr. KOLB. Well, our interpretation, and this is brought out
clearly in the STTR report for the five agencies that was just
published by the National Academy, is that in the various
agencies, some agencies have a desire to promote more basic
research as we heard, and others do not. And the areas where
more basic research is not as highly valued as some of us thing
it should be, this special access to universities and other
non-corporate nonprofit research agencies, research institutes
that STTR promotes directly particularly is not an added
attraction for some of the agencies.
Mr. MOULTON. Well, let me just get to the heart of it. I
mean, do you think it is a good thing or a bad thing when these
programs are managed together?
Mr. KOLB. Well, our conclusion is that the program managers
are using the STTR in the way that works best for their agency,
and it is just a fact that some agencies are moving away from
sponsoring as much fundamental research as the program used to
have. And I think there is a wide feeling among the SBIR
companies that maintaining some very fundamental research
topics in the solicitations actually would be very good for the
program going forward.
Mr. MOULTON. Thank you. David?
Mr. GREEN. I agree that there should be a different
approach. There are certain agencies that, let me us the
expression, mission agencies such as the Department of Defense,
in which they would be a potential customer, not the exclusive,
but a customer for the technology. And I think that over the
last decade the Department of Defense has become aware of how
valuable this new technology development program can be to
provide technology spiral upgrades toward the national mission.
And so, clearly their emphasis should be, would be, of
necessity different than perhaps the National Science
Foundation. But I think there needs to be a room for both of
those opinions and those emphases. Even within DOD, there
should not be an emphasis only on the highest technology
readiness level, TRL, that there needs to be some in this
valley of death.
This technology has reached a certain maturity, but it is a
long way away from the TRL-9, if you will let me use jargon,
the highest technology readiness level where you can hand it to
a warfighter or put it on the fleet. And so, the SBIR takes it
so far. One of the suggestions I was making was to let the
program take it a touch further to where in DOD the mission
agency would then begin to put core funds against it.
For the non-mission agencies, they should reach out toward
the commercial world, but once again I am advocating that
perhaps more funds be placed in after the phase 2 to move it
closer to a commercial product. We have transitioned things to
commercial products, and the result of a phase 2, which worked
in the laboratory, is not a compelling story to the
pharmaceutical company who wants to buy a sensor to put on its
analytical line. And so, there still is a gap.
Mr. MOULTON. Thank you. Thank you very much, Mr. Chairman.
Chairman HANNA. Thank you. You have the Massachusetts and
Connecticut SBA person here in the regional director. I want to
ask you about risk because a lot of what we are doing here
today is talking about risk, engaging in risk, how do we
measure risk, and what are the benefits of risk. Therefore, on
that continuum, and you talked about continuing that risk
through phase 2 with presumably marginal things at the moment,
but with great potential.
I want to ask you if you think that in general we measure
risk appropriately, if that is a fair question.
Mr. BIRD. Is that for me or the----
Chairman HANNA. Anybody. No, I mean, you have a chance to
talk to the couple of big shots here. You might as well take
advantage.
Mr. BIRD. I think it is a $2 billion a year program. It
should be managed like a portfolio.
Chairman HANNA. Maybe move your microphone a little closer.
Mr. BIRD. It should be managed like a portfolio, and there
should be higher risk components of the portfolio and lower
risks. And how to measure it is a very inexact art, but I think
technology readiness levels are a proxy for risk that we are
taking. And so, I like the idea of experimentation, that some
agencies might be focused more on pure research and others on
product development. NSF certainly is strong on
commercialization, but I think it needs to be managed as a
portfolio.
Chairman HANNA. Mr. Kolb?
Mr. KOLB. My personal opinion is that not only in the SBIR
and STTR program, but in fairly funded research in general,
there is too little high-risk, high potential reward work going
on, things that can really change the game. And given the fact
that budgets and money agencies, DOD in particular, in terms of
their normal 6-1 to 6-3 research and development funding, those
dollars are not nearly as plentiful as they were during the
Cold War and so on when there was a lot of opportunity to do
research to help with our Nation's military.
So now, many of the DOD sub-agencies use the SBIR/STTR
program to solve current and relatively narrow problems, and I
do not fault them for that. They have these problems. They do
not have options to get money to solve them any other way than
to----
Chairman HANNA. You know, about 15 percent of the
applications are actually accepted.
Mr. KOLB. Yeah, that is correct as well. But I think all
the agencies would benefit from having some funds identified to
put on what would look very high-risk proposals, but if they
prove to be true could really change how the agencies run their
businesses.
Chairman HANNA. Mr. Green?
Ms. ESKESEN. If I could bring a different perspective than
the ones we are hearing, we are tracking newcomer, old comers
into various agencies, and we were asked to do that by the SBA.
And one of the things left out is that there is a significant
percentage of the agencies are going with the guys they already
know. And the ability of newcomers to get into the program is
dropping quite precipitously.
And if you are talking about, for example, any one of the
Air Force, Navy, Army, and the like, their percentage of
newcomers in any one year is incredibly small. Interestingly,
in NIH, it is quite high. It is almost 40 percent. The
conversion rate to phase 2 and the ability of that company to
go on is an issue to be discussed.
But I think there are ways that the agencies are mitigating
their own risk by who they are choosing to fund. One of the
things I did not get a chance to mention is that when you look
at venture capital in the SBIR space, there used to be a clear
patent. A company would be formed or get his SBIR award or vice
versa, but it was happening in the same sort of time horizon,
and sometime later, venture capital would come onto the scene.
There is virtually no venture capital being awarded anymore
to a company that started with SBIR and no venture capital. All
the venture capital is going to companies that already have
venture capital, that all the companies----
Chairman HANNA. So what you are saying, the whole process
has become risk averse.
Ms. ESKESEN. That is right. I am.
Chairman HANNA. Mr. Green?
Mr. GREEN. I guess, remember the SBIR program is 3 percent
of the R&D and T&E budget. And so, your statement really needs
to be reflected more broadly across the whole research
structure of the United States. I mean, I think this SBIR when
it was created to address America's, at that time, inadequacy
to transition great ideas to products. That was the concept the
Japanese were doing far better a job at it than we were at that
time.
So I think it began with a bent toward the practical.
However, your question is a very good one. Fundamentally,
America has become, I believe, focused too much on the
immediate payoff.
Chairman HANNA. Well, what I am suggesting is that, and
this is going to sound strange coming from my side of the aisle
maybe, but that the fact that this program is so successful is
actually in a strange way a counter indicator. Thank you for
nodding your head. I appreciate it. That if you were doing
things correctly, you would push that environment until you
reached a point where you actually started to lose.
That would be that inflection, that X-Y axis that suggests
to you that you are taking the maximum amount of risk with the
minimum amount of lost opportunity. And it is hard right now to
get anything authorized. You know, I am fairly confident this
will be reauthorized.
So I wanted to ask you, Mr. Green--with your indulgence.
Mr. MOULTON. Of course.
Chairman HANNA. You mentioned phase 2, and you are
disappointed that you see these wonderful things at phase 2
that are not carried on because at some point somebody says
this is too risky. It is not going far enough fast enough. How
do you change that dynamic? Who is the guy who makes that
decision? And why should not he make, or she, make that
decision since it is public money?
Mr. GREEN. The SBIR programs have a legislated amount of
money, and, yes, different companies have demonstrated
different efficiencies. And I am sure there are cases where the
phase 2 program is adequate to create a commercial product, but
most often it matures it to a certain level, and it is a
competitive process. But when we take that experimental
prototype and we go to a commercial company, they say that is
fine, give me the part number, and I want to buy it.
The commercial entity does not want to fund any R&D. They
want to have essentially a finished product. So that gap can
either be filled with the company's retained earnings, external
investment, and often even to go from that point of the
prototype to the product takes a long time.
Chairman HANNA. Can you give me an example?
Mr. GREEN. We are building an instrument for the
pharmaceutical industry, and it measures freeze drying
efficiency. And the benefits are many-fold in that in that
industry, a lot of the medicine could cost millions of dollars.
But yet, they want to buy an instrument that is proven and will
cost $100K.
The NIH/SBIR and NSF/SBIR that we had to mature it took it
along a certain distance, but we still needed to invest
significant money. Our company, we explore all the pathways. We
invested our own money. We took money from another commercial
company as essentially an advanced loan, if you will, an
advanced payment. And we eventually matured that to a product,
but it took many years. If the SBIR, as it has done in the 2011
reauthorization, permits there to be the next stage of
investment of SBIR funds, then that would have moved much more
quickly, and it would have probably produced a better product.
We have also tried to spin technologies out to a new
company with venture-funded partners. And in that case, the
SBIR technology was a certain maturity, but it was still a very
long road to a product. And so, as a result, the venture
funding needed sequential rounds of funding to have that
technology reach product and reach the market. And oftentimes
those companies fail just because the technology takes a
certain amount of time, and it takes a certain amount of money.
And in that process, often the founders are diluted out of
the process, and the venture entity itself faces, as we know
these statistics, that only a small fraction actually become
homeruns, and many fail. And I would argue yet a little more
development funding on the government's part would increase the
yield out the other end.
Ms. ESKESEN. And I would concur, and I think a related
issue to that is that small firms almost by definition are
component, not full systems builders. And no matter the fact
that I think SBIR is amazing, we shift the primary burden of
risk resolution to the small firm. It becomes your job, their
job to get together the other assets that are required to
continue the process.
And I think there is an argument to be made by standing
back, not the whole program, just parts of it, but standing
back from some of these types of concerns and experimenting
with different ways of mitigating the risk so that we are not
putting the whole entire program at risk, but we are seeing
whether or not trying certain things----
Chairman HANNA. But does it not at some point become
almost, I mean, it is scientific and it is practical, but at
that level it becomes very subjective. Do you not think, Mr.
Green? So how do you do that?
Mr. GREEN. How do you do that? Well, it does require the
engagement and involvement of the government program managers
in that evaluation, not necessarily so much the commercial, as
the commercial and the technical together. I will simply state
that we did have, we had two SBIRs on this technology from
different agencies for different missions. But we have had to
seek many, many times that amount of money afterwards to see
through to a product, and it has also taken many years because
it was moving to get accepted in by the government. It took
many years for the government to recognize, test, evaluate, and
then put it into their planning documents.
Chairman HANNA. Well, thank you. Thank you all. It has been
wonderful testimony, especially from people who have had
experience with the programs. So I would imagine there is no
one in the country that knows more than you do about this
program. So we are grateful and grateful for your statements. I
thank you all again.
Independent research conducted by the National Research
Council, at the National Academies of Science, and the
Government Accountability Office have shown that the SBIR and
STTR programs are meeting or exceeding most of their statutory
requirements. They are good programs that do what they were
supposed to do, and that is very good for our country as you
have heard today, but we can do better.
We will take the suggestions you have made and provided us
with today, work to incorporate them. And I would urge you if
you have an idea that we can put in the form of an amendment or
a bill, that Congressman Moulton and I will certainly in our
position are capable of carrying that forward and trying to
sell your suggestions.
And I will turn to you for your closing statement if you
have one.
Mr. MOULTON. Sure. Thank you, Mr. Chairman. I just want to
thank all of you for coming here, not just those of you who
came to testify, but all of you who came to participate and to
listen to this hearing. It is difficult for us to do our job in
Congress without truly acting as your representatives, and that
means coming here and listening to you, and to understand at
the ground level how these programs are working. We are looking
forward to reauthorizing this program, but we hope to do with
some necessary improvements, and some improvements that will
help the program not only continue its amazing track record to
date, but really expand on that success for the years to come.
As a member of not just the Small Business Committee, but
the Armed Services Committee as well, I see every single day
how important it is that we continue our technological
development to compete with our adversaries across the world.
So in that particular window for DOD, I understand how critical
this program is. And we have a little bit of catching up to do,
so it is time to make sure that we not only reauthorize this,
but improve it for the future. And your testimony today has
been immensely helpful for that, so thank you all very much for
participating.
And, Mr. Chairman, I yield back.
Chairman HANNA. Thank you, and I think along with my
ranking member here, we both go back with, I certainly, a more
enthusiastic vision about this program. I am grateful for that.
And there is a difference between expense and investment. These
are clearly investments in our future. I have heard that from
everyone here today.
I ask unanimous consent that members have 5 legislative
days to submit their statements and supporting materials for
the record.
Without objection, so ordered.
This hearing is now adjourned, and thank you very much.
[Applause.]
[Whereupon, at 2:11 p.m., the Subcommittee was adjourned.]
A P P E N D I X
MASSVENTURES
I want to thank Chairman Chabot, Ranking Member Velazquez
and Congressman Moulton for inviting me to testify today on the
critical need to reauthorize the SBIR/STTR program.
My name is Jerry Bird and I am the President of
MassVentures. MassVentures is a quasi-public venture capital
firm focused on fueling the Commonwealth's innovation economy
by funding early-stage, high-growth, Massachusetts startups as
they move from concept to commercialization. We were honored to
receive the prestigious Tibbetts Award in 2015 from the U.S.
Small Business Administration, recognizing our significant role
in driving innovation and creating new jobs through the SBIR
and STTR programs.
As is often the case here in Massachusetts, when
MassVentures was formed 38 years ago, we were the first program
of our kind in the country. Our model and our mission to
provide start-ups with early funding; guidance in operational,
finance and sales, and; position them for additional rounds of
funding from the traditional venture capital community has now
been replicated throughout the country and across the world.
In our 38 years, MassVentures' portfolio companies have
raised $1.1 billion in additional funding; directly created
7500 jobs in Massachusetts, and; 16 MassVentures backed
companies have gone public. In many cases, the companies we've
been able to invest in and help grow got their start through
SBIR/STTR funding.
The SBIR/STTR programs have played a vital role in
harnessing the immense human capital of Massachusetts' higher
education, medical and research institutions. The SBIR and STTR
programs provide opportunities to small firms to create great
ideas but are unable to attract traditional venture capital
funding or need seed funding to pursue those projects that the
private sector has decided are too high-risk or not lucrative
enough. However, it's exactly these high-risk, high-reward
projects that truly drive innovation in Massachusetts.
There is no question SBIR/STTR has been effective in
allowing concepts to begin the road to commercialization. But
even after two years of funding, many companies weren't ready.
Research was still ongoing. Prototypes needed testing. Or
often the company's founders weren't ready to juggle innovation
with the everyday demands of operations, finance and sales.
It's hard to master your elevator pitch when you're spending
all your time in a lab trying to create something that's never
been created before, or attempting to solve a problem long
thought unsolvable.
The federal government had played its role. SBIR/STTR had
brought many companies to the verge of commercialization. But
there were still too many instances where we were left asking
``what could've been.''
A gap remained.
In 2012, we created the SBIR Targeted Technologies
program--START--to bridge that gap and ensure growing
Massachusetts-based companies would be able to commercialize
technologies developed under SBIR and STTR contracts.
Recognizing that innovation, invention, disruption take time,
the START program provides up to three additional years of
funding for SBIR/STTR projects. Stage I companies are awarded
$100,000 grants. Stage II companies receive $200,000 and Stage
III companies receive up to an additional $500,000. The most
successful START applicants can receive a total of up to
$800,000.
In just four years, START has provided $9 million in grant
funding to 40 deserving SBIR projects. START companies have
raised additional capital of $138 million and seen a 30%
employee growth. MassVentures has created an ecosystem of more
than 200 companies, reviewers, service providers and advisors.
Energid started as a robotic software company serving
almost exclusively NASA and the Department of Defense. However,
it was clear there was a broader application for their software
and expertise in robotics. The company took the risk of
creating small arm-sized robots to demonstrate the power and
potential of its software. In 2013, MassVentures awarded
Energid a Phase I START grant.
Energid sold their robots to early adaptors and is now in
discussion with major global corporations and poised to sell
thousands of units. Technology which had been developed to
control lunar excavation for NASA is now being used to drill
for oil in the North Sea, conduct surgery and even pick
oranges. A Massachusetts-based software company, supported
through MassVentures and START, Energid has emerged as one of
the world's leading robotic technology companies.
START has also proven that innovation can happen anywhere.
While we evaluate START applicants through our prism as
investment professionals, there is nonetheless a remarkable
geographic diversity among START companies. Companies outside
Boston and Cambridge that might have otherwise lacked the time,
resources, support or network necessary for success now have
it.
There are START companies in Barnstable, Canton, Charlton,
Chelmsford, Georgetown, Littleton, Newburyport, Wakefield and
Wilbraham. These companies have the potential to be economic
anchors in their communities, spurring much needed
revitalization and attracting new businesses and residents.
Without SBIR/STTR, these companies likely never would have
begun; without START these companies likely never would have
survived.
Just as MassVentures was, we believe the START program
should serve as a national model for how states can best
leverage the federal government's investment through the SBIR/
STTR program. The SBIR/STTR programs are essential in order to
allow American scientists and researchers to innovate, invent
and discover the technologies of tomorrow. But states must also
do their part to build on progress made through SBIR/STTR
funding and ensure those technologies of tomorrow are not
always a day away.
Testimony of Charles E. Kolb
President and CEO of Aerodyne Research, Inc.
Billerica, MA 01821-3976
Subcommittee on Contracting and Workforce
House Committee on Small Business
``Commercializing on Innovation: Reauthorizing the Small
Business Innovation Research and Small Business Technology
Transfer Programs Part II''
Lynn City Council Chambers
3 City Hall Square, Lynn, MA
Tuesday, March 8, 2016
Mr. Chairman and Subcommittee Members:
Thank you for inviting me to testify today about the
effectiveness of the Small Business Innovation Research and
Small Business Technology Transfer (SBIR/STTR) Programs. My
company, Aerodyne Research, Inc. (ARI), was founded in late
1970 as a contract research organization focused on improving
the nation's strategic defense systems. We subsequently
broadened our range of expertise to include energy technology
and major environmental issues such as stratospheric ozone
depletion, ambient air quality, acid deposition and climate
change.
Until Congress passed the Competition in Contracting Act
(CICA) in 1984, small high technology companies like ARI could
submit unsolicited proposals to research and development (R&D)
programs in relevant federal agencies and often win sole source
contracts to pursue their best ideas. However, CICA regulations
essentially eliminated unsolicited proposals. Also in response
to CICA regulations many agencies greatly reduced the number of
R&D contracts they issued to small businesses, relying instead
on large and complex contract solicitations that required large
company led teams to adequately respond. Businesses too small
to credibly lead these more substantial requested proposals
then had to sell their capabilities to large ``system
contractors'' to be included in proposals. Further, even when
small companies managed to join a winning proposal team, they
might not receive the funding they expected, since the large
prime contractors controlled the flow of project funds and
often would prioritize funding distributions to their own
employees.
After the CICA took effect the SBIR program, which had
started in 1982, and the STTR program, started in 1992, became
major sources of federal R&D funding for many scientists and
engineers employed by small businesses (<500 employees).
However, the federal government's expectations for
``successful'' SBIR and STTR grants or contracts are
significantly different than expectations for normal research
funding.
Normal federal research funding is generally deemed
successful if a novel scientific understanding is achieved or a
successful technological advance is implemented. These
successful outcomes are traditionally documented in patents
and/or peer reviewed archival publications, adding to the
nation's reservoir of scientific and technological knowledge
and capabilities. Of course, the purpose of R&D funding from a
mission agency may be to produce information and/or
capabilities applicable to some part of the funding agency's
mission.
SBIR/STTR funding is expected to produce the same level of
new scientific understanding and/or technological advances as
normal federal R&D funding; all properly documented in
scholarly articles and/or patents in both cases. However, it is
also expected to produce an innovative product that either
solves a mission agency's designated problem or can be easily
engineered to compete successfully in commercial markets
(ideally both mission agency adoption and commercial success
are achieved). In addition, the ``successful'' SBIR/STTR
company also hires additional, well-paid staff members or spins
off new companies that commercialize the parent company's SBIR/
STTR funded technologies.
At ARI we have adopted a strategy of using SBIR/STTR funds
to develop proprietary technology that we can use to expand our
own research capabilities as well as sell to our R&D peers
worldwide. Our most successful tactic is to develop new and
better ways to measure both gas phase and small aerosol
particle pollutants in real-time and with very high sensitivity
and specificity. Starting in the mid 1990s we have used SBIR/
STTR funds to develop three lines of mobile, robust instruments
that can be used in both laboratory and field experiments to
measure the properties and concentrations of air pollutants.
Initial versions of these instruments were tailored for skilled
scientist users, while some subsequent models can operate
autonomously and are suitable for routine pollutant monitoring
stations.
Since 2000 the increases in the capabilities and sales of
these three instrument lines have evolved dramatically. From
2000 to 2015 instrument sales have grown from less than 1
million to over 14 million $/year. In FY2015 instrument sales
provided 65% of our corporate revenues and R&D projects 35%.
Over the past 15 years we have earned $80 million in instrument
sales to customers on six continents; with--80% of the sales
outside of the U.S., helping our nation's balance of payments.
We have also hired a significant number of instrument engineers
and assembly technicians to help develop, assemble, test and
service our instrument product lines.
Some of our U.S. instrument sales have been to U.S. federal
laboratories, including DOE National Labs, NASA Center Labs,
DOD Laboratories, EPA Labs, and the NSF's National Center for
Atmospheric Research. So our instrument products have not only
been successfully commercialized worldwide, but they have also
directly served the needs of the agencies whose SBIR/STTR funds
enabled their development.
We are also proud of our scientific accomplishments, during
the FY 2000-2015 period we were supported by other funding
sources to perform over $18 million worth of laboratory and
field measurements using our instrument products. Recent
sponsored research projects have measured methane emissions and
other pollutants from oil and gas operations, including
fracking well pads, gas plants, transmission pipeline
compressors and gas storage facilities all over North America,
including the recent Aliso Canyon gas storage facility's mega
leak near Los Angeles. We have also recently mapped air toxic
pollutant levels in poor neighborhoods near the Houston Ship
Channel and measured trace gas and fine particle air pollution
levels in Beijing. In fact, ARI has twice been named the
Department of Energy's SBIR/STTR Company of the year (2006 and
2013) for our contribution to their environmental research
programs as well as our equipping their scientists with
important new research tools.
We also contribute to our nation's scientific reservoir; in
2015 ARI scientists published 75 peer reviewed scientific
papers, most based on measurements using our instrument
products. We also received three U.S. patents for innovations
to improve instrument performance.
I believe that we have demonstrated that SBIR/STTR funding
stimulates scientific discoveries and technological inventions
that both meet federal agency needs and can be successfully
commercialized, serving both national and international
markets. Further, SBIR/STTR awards promote successful science
based companies that provide well paying jobs to talented
scientists, engineers, technicians and business staff
employees.
At our company, and many hundred others, support from the
SBIR/STTR program has successfully stimulated the production of
the range of scientific, technological and economic benefits
envisioned when Congress created these programs. Reauthorizing
these programs will serve our nation well.
Commercializing on Innovation: Reauthorizing the SBIR and STTR
Programs Part II.
Testimony by Dr. B. David Green, Physical Sciences Inc. Andover
MA on March 8, 2016
Good afternoon Congressman Hanna and Congressman Moulton:
Thank you for your interest in the SBIR program and
allowing our innovative companies to participate and share
their stories. SBIR represents America's seed capital and has
helped create new companies, excellent high technology jobs,
and a great many publications and patents. It is the envy of
other countries, and its success has not been duplicated due in
part to America's unique entrepreneurial culture. The SBIR
program funds concepts at very early stage where no other
funding source exists. It allows the risk takers to retain and
reap the rewards of their dedicated efforts. The government and
the agencies are truly patient angel investors. Ultimately the
investment is returned through taxes. Recent studies by the
National Academies and by the mission agencies report its great
success. Every government dollar results in over $3 of revenue
after Phase II.
The SBIR is a great program. I wish to make three
suggestions for your consideration to make it even better. The
SBIR program has demonstrated its value over the past 33 years.
First, please make it permanent. A long term charter for the
program allows for better agency planning and staffing. Before
the 2011 reauthorization, there were 14 short term
continuations that made it difficult for the agencies to
execute the program and made it impossible for the small
businesses to maintain staff and advance their technology.
Since the 2011 Reauthorization, the SBIR program managers and
staff at all the agencies have shown great dedication and
commitment to making this good program even better--making ever
more companies aware of this opportunity. We recognize and
commend the dedicated efforts by the staff at SBA and the many
agencies.
My second suggestions is to increase the allocation to the
SBIR program. This program is budget neutral--and our request
is to shift more resources to a program that has proven its
effectiveness. Currently only 3% of the R&D funding in federal
agencies is allocated to SBIR. I ask that you increase that
allocation gradually to 5% over the next decade--and to focus
the funds from that increase to maturing technology after the
initial Phase II program. For years, many worthy technologies
have died at the conclusion of Phase II programs because the
technology, although demonstrated, is not in a form recognized
as viable by a commercial company or a mission agency. At the
end of Phase II it has not been demonstrated outside the lab
under real world conditions. This gap has become known as the
Valley of Death for SBIR technologies. Too many do not make it
through to become viable commercial products. A good many
receive some post-Phase II funding ut it is too little, too
fragmented, too restrictive. The Commercialization Readiness
Program created in the 2011 Reauthorization has begun to
address this need. I urge you to consider increasing the SBIR
allocation and focusing it on further maturation of promising
technologies after Phase II.
My last suggestion is to make access to the SBIR program
easier so that a wider diversity of companies compete and win
programs. We all understand that it is not easy doing business
with the federal government. Recently there has been
significant effort to involve nontraditional ventures and new
companies in providing technology to address our national
needs. Instructions are complex. Submission is complex.
Regulations are complex. A very large barrier to those new
participants is the requirement for a government approved
accounting system. We ask you to consider strongly encouraging
the agencies with an SBIR program to use Fixed Price Best
Efforts contracts for Phase II programs with the prototype
remaining with the small business to enable transition to a
commercial product. This will reduce the burden on both the
companies and the government contracting officers to a fraction
of the level needed in Cost Plus type contracts. Fixed Price
will enable speedier contract award and more rapid advance of
the technology. The innovators will spend more time on their
technology rather than complying with the FAR. Most
importantly, this will encourage many new entities to
participate in the SBIR program.
Our employee owned company, PSI, has successfully
transitioned many SBIR technologies. We find the fastest way to
move the technology to market. Under NIH NEI sponsorship, PSI,
working with clinical researchers, developed a retinal tracking
method permitting greatly improved eye examinations. We
partnered with a leading eye equipment manufacturer, and have
sold 16,000 systems containing this technology over the last
eight years--producing over $1B in revenue, and providing
better eye care for tens of million Americans. Under EPA
sponsorship we developed a handheld LIDAR to detect natural gas
leaks. Our partner has sold over 3000 systems and a large
fraction of American homes have been made safer using this
technology. Under Air Force sponsorship we have developed
critical optical components that are now integrated into
aircraft systems.
In emerging technology areas we have sought external equity
investment and created new companies. And PSI has also
manufactured and sold the technology directly into specialized
markets. Under NASA sponsorship we created accurate space
simulation chambers that have been sold around the world, and
offered testing services. Nearly every material that has been
put into space has been tested in our chambers. Under Army SBIR
sponsorship we have developed and sold sensors to detect
chemical warfare agents remotely at distances permitting troop
safety. Under Navy sponsorship we have developed fuel quality
monitors for naval and commercial aviation. Under DNDO
sponsorship PSI has implemented novel algorithms that vastly
improve radiation sensor performance at screening portals. And
under Army sponsorship we have developed a small UAV to provide
our warfighters and law enforcement situational awareness. This
capability is now deployed and contributing to national
security.
PSI is a founding member of the New England Innovation
Alliance. NEIA meets regularly to share best practices and
discuss topics of common interest and concern. Many of our
fellow members are here today to share their SBIR technology
success stories with you.
The SBIR program is already one of the most successful in
the government. It is America's seed capital. Today I have
offered three suggestions to improve this already terrific
program. I ask you to please move to reauthorize this program
now, to increase its allocation and to encourage contracting
methods that encourage new companies to participate in the
program. SBIR's success is documented in the National Academy
studies. I ask you to reauthorize it to keep technology
innovation strong in America, and help America to remain the
world leader in technology.
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