[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
IMPROVING THE SMALL BUSINESS INNOVATION RESEARCH AND SMALL BUSINESS
TECHNOLOGY TRANSFER PROGRAMS
=======================================================================
JOINT HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
AND THE
SUBCOMMITTEE ON RESEARCH AND TECHNOLOGY
OF THE
COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MAY 4, 2017
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-019
Science, Space, and Technology Committee Document Number 115-013
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
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
DON BACON, Nebraska
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RON ESTES, Kansas
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Majority Staff Director
Jan Oliver, Majority Deputy Staff Director and Chief Counsel
Adam Minehardt, Staff Director
HOUSE COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
LAMAR SMITH, Texas, Chairman
FRANK D. LUCAS, Oklahoma
DANA ROHRABACHER, California
MO BROOKS, Alabama
RANDY HULTGREN, Illinois
BILL POSEY, Florida
THOMAS MASSIE, Kentucky
JIM BRIDENSTINE, Oklahoma
RANDY K. WEBER, Texas
STEPHEN KNIGHT, California
BRIAN BABIN, Texas
BARBARA COMSTOCK, Virginia
BARRY LOUDERMILK, Georgia
RALPH LEE ABRAHAM, Louisiana
DARIN LAHOOD, Illinois
DANIEL WEBSTER, Florida
JIM BANKS, Indiana
ANDY BIGGS, Arizona
ROGER W. MARSHALL, Kansas
NEAL P. DUNN, Florida
CLAY HIGGINS, Louisiana
RALPH NORMAN, South Carolina
EDDIE BERNICE JOHNSON, Texas, Ranking Member
ZOE LOFGREN, California
DANIEL LIPINSKI, Illinois
SUZANNE BONAMICI, Oregon
AMI BERA, California
ELIZABETH H. ESTY, Connecticut
MARC A. VEASEY, Texas
DONALD S. BEYER, Virginia
JACKY ROSEN, Nevada
JERRY MCNERNEY, California
ED PERLMUTTER, Colorado
PAUL TONKO, New York
MARK TAKANO, California
BILL FOSTER, Illinois
CHARLIE CRIST, Florida
COLLEEN HANABUSA, Hawaii
SUBCOMMITTEE ON RESEARCH AND TECHNOLOGY
BARBARA COMSTOCK, Virginia, Chairwoman
RALPH ABRAHAM, Louisiana
FRANK LUCAS, Oklahoma
RANDY HULTGREN, Illinois
DARIN LAHOOD, Illinois
DANIEL WEBSTER, Florida
JIM BANKS, Indiana
ROGER MARSHALL, Kansas
EDDIE BERNICE JOHNSON, Texas
DANIEL LIPINSKI, Illinois, Ranking Member
ELIZABETH ESTY, Connecticut
JACKY ROSEN, Nevada
SUZANNE BONAMICI, Oregon
AMI BERA, California
DONALD BEYER, Virginia
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Steve Knight................................................ 1
Hon. Stephanie Murphy............................................ 2
Hon. Barbara Comstock............................................ 4
Hon. Daniel Lipinski............................................. 5
WITNESSES
Mr. Joe Shepard, Associate Administrator, Office of Investment
and Innovation, United States Small Business Administration,
Washington, DC................................................. 8
Mr. John Neumann, Director, Natural Resources and Environment,
United States Government Accountability Office, Washington, DC. 9
Mr. John Clanton, Chief Executive Officer, Lynntech Inc., College
Station, TX.................................................... 23
John S. Langford, Ph.D., Chairman and CEO, Aurora Flight Sciences
Corporation, Manassas, VA...................................... 25
Mr. Ron Shroder, CEO/President, Frontier Technologies Inc.,
Beavercreek, OH................................................ 26
Ms. Angela M. Alban, President and CEO, SIMETRI, Inc., Winter
Park, FL....................................................... 28
Clinton T. Rubin, Ph.D., SUNY Distinguished Professor and Chair,
Department of Biomedical Engineering, Director, Center for
Biotechnology, Stony Brook University, Stony Brook, NY......... 30
APPENDIX
Prepared Statements:
Mr. Joe Shepard, Associate Administrator, Office of
Investment and Innovation, United States Small Business
Administration, Washington, DC............................. 39
Mr. John Neumann, Director, Natural Resources and
Environment, United States Government Accountability
Office, Washington, DC..................................... 44
Mr. John Clanton, Chief Executive Officer, Lynntech Inc.,
College Station, TX........................................ 68
John S. Langford, Ph.D., Chairman and CEO, Aurora Flight
Sciences Corporation, Manassas, VA......................... 73
Mr. Ron Shroder, CEO/President, Frontier Technologies Inc.,
Beavercreek, OH............................................ 75
Ms. Angela M. Alban, President and CEO, SIMETRI, Inc., Winter
Park, FL................................................... 101
Clinton T. Rubin, Ph.D., SUNY Distinguished Professor and
Chair, Department of Biomedical Engineering, Director,
Center for Biotechnology, Stony Brook University, Stony
Brook, NY.................................................. 122
Questions and Answers for the Record:
Questions from Ranking Member Eddie Bernice Johnson, Hon.
Daniel Lipinski, and Hon. Paul Tonko to Mr. Joe Shepard.... 136
Additional Material for the Record:
Statement by Chairwoman Barbara Comstock, Subcommittee on
Research and Technology.................................... 140
Statement by Hon. Eddie Bernice Johnson, House Committee on
Science, Space, and Technology............................. 143
Statement by Ranking Member Daniel Lipinski, Subcommittee on
Research and Technology.................................... 145
Statement by Chairman Lamar Smith, House Committee on
Science, Space, and Technology............................. 148
IMPROVING THE SMALL BUSINESS INNOVATION RESEARCH AND SMALL BUSINESS
TECHNOLOGY TRANSFER PROGRAMS
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THURSDAY, MAY 4, 2017
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
joint with the
Subcommittee on Research and Technology,
Committee on Science, Space, and Technology,
Washington, DC.
The Subcommittees met, pursuant to call, at 10:02 a.m., in
Room 2318, Rayburn House Office Building, Hon. Steve Knight
[chairman of the Subcommittee on Contracting and Workforce]
presiding.
Present from Subcommittee on Contracting and Workforce:
Representatives Knight, Estes, Chabot, Murphy, Clarke, Evans,
and Lawson.
Present from Subcommittee on Research and Technology:
Representatives Comstock, Marshall, Lipinski, and Tonko.
Chairman KNIGHT. Good morning. Thank you all for coming.
This is a bit of a historic moment, the first time in a long
time that the Small Business and the Science, Space, and
Technology Committees are having a joint hearing. And I think
that that is something that we can all be proud of, that we are
working together.
That being said, we are only going to work together for a
few minutes, and then we are going to go down and vote. And
hopefully we will work together there and come back and keep
this moving.
But I think what we will do is we will do as much of our
opening comments as we can and maybe put a bookmark there
before we get to witness statements. And I don't know if we are
going to have any stop there.
So with that being said, good morning, and thank you all
for being here to examine Small Business Innovation Research
and Small Business Technology Transfer, or SBIR/STTR, programs.
Innovation is the engine to our economy. You are going to
hear me say that probably every hearing that I chair, and I
think we firmly believe that. Technological breakthroughs and
the entrepreneurship it spurs builds our economy by finding
state-of-the-art solutions to difficult problems and
capitalizing on 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. They drive innovation. They make us more agile in
the world economy.
In this era of globalization, making it easier for small
businesses to develop and commercialize new, innovative
products is essential not only for America's competitiveness,
but for our national security as well.
This is why we need programs like SBIR and STTR programs.
These programs, envied and emulated across the world, were
created based on the premise that small technological-based
firms tend to be highly innovative and inventive and that this
innovation should be better harnessed by the Federal
Government.
Binding these new developed technologies with our Federal
R&D efforts was seen as a natural extension to both boost
small-business participation in Federal R&D activities and to
solve agency institutional problems at the Department of
Defense, National Institutes of Health, or the Department of
Energy.
All too often, good ideas never materialize because of a
myriad of obstacles. I think we can say that. It could be lack
of funding, lack of understanding, or a perceived lack of a
marketplace for a truly new and amazing technology. And I can
say that every one of us on this dais has been to small
businesses and seen great activity and great innovation.
The SBIR and STTR programs bridge the gap between
fantastical and the practical, building our economy and
improving the function of the Federal Government in the
process.
Over the past few years I have had the opportunity to meet
some of the entrepreneurs who participate in these programs,
and I have seen some of the truly groundbreaking technologies
they have produced. By visiting small businesses around my
district and attending some of the national SBIR/STTR
conferences here in Washington, I have been impressed at how
technical and pioneering these technologies can be. The small
businesses that participate in these programs are truly and
rapidly pushing the boundaries of what is possible in a variety
of fields.
Last year, our two Committees worked with the House and
Senate Armed Services Committee to include a 5-year extension
of the SBIR/STTR programs. This provided small businesses and
the participating agency alike with the confidence and security
to know that those popular programs will continue to be there
at least through 2022. This year, both our Committees are
interested in collaborating on legislation making minor
adjustments and improvements to the programs.
Today, we have two excellent panels of witnesses to discuss
these programs and provide the Subcommittees with suggestions
as to how to make them superior for small businesses and
participating agencies alike. I am looking forward to hearing
those ideas and working with my colleagues on both Committees
to draft legislation we will all be proud of.
Again, I want to thank you all for being here. I now yield
to the ranking member for the Subcommittee on Contracting and
Workforce, Mrs. Murphy of Florida, for her opening remarks.
Mrs. MURPHY. Thank you all for being here.
And thank you, Mr. Chairman.
The Small Business Innovation Research program, or SBIR,
and the Small Business Technology Transfer program, or STTR,
were established to spur innovation and job creation throughout
the country. Since their inception, these programs have awarded
over $40 billion to small innovative firms. Today, SBIR is one
of the Federal Government's largest technology development
programs.
Research conducted by SBIR and STTR awardees has helped to
address our country's most important research and development
challenges. As a direct result of these programs, breakthroughs
have been made in a wide range of sectors; in agriculture, in
energy, and most notably in health care.
These discoveries, in turn, have generated tremendous
economic growth and employment opportunities. For example, in
fiscal year 2013, my home State of Florida received 107 SBIR
awards totaling $49 million, the 10th most among all
participating States and territories.
Florida also received 24 STTR awards, totaling nearly $9
million, which placed it sixth among participating
jurisdictions. As reported publicly, there have been at least
40 awards made to firms in central Florida in 2016 and to date
in 2017. For many research companies in my district, these two
programs serve as a gateway to the Federal contracting field.
The continued success of the SBIR and STTR programs depend
upon three primary factors. First, the program must remain
highly competitive. Second, applicants and awardees must have
access to the financing of all types, including venture
capital. And third, we must ensure these products make it to
market.
The current administrative fee authorization for these
programs will expire in September 2017, but the full program
was granted a 5-year extension in the 2017 NDAA. While the
Committee has seen these programs succeed as a result of
legislative updates made in 2011, there are still various areas
of concern that require examination.
One of the primary outcomes of the 2011 legislation was a
greater focus on commercialization through sequential Phase II
awards. This was necessary to ensure that the program remains a
catalyst for innovation and job creation associated with these
scientific advances.
During today's hearing, I look forward to learning more
about how the reauthorization's various commercialization
initiatives have played out in Florida and nationwide and if
they are, in fact, resulting in more successful endeavors.
Among other notable changes in 2011 were increases in
permissible award sizes and a Phase 0 proof of concept
partnership pilot program at NIH. I hope today's hearing sheds
light on the success of these provisions. I am particularly
interested in the pilot program given the presence of the
University of Central Florida in my district.
While the 2011 reauthorization made several modifications
to further assist small firms, the needs of innovative
companies have evolved and so too must these programs. Two
issues continue to raise concerns.
First, the programs remain concentrated in just a few
States. Indeed, the top 10 awardee States receive over half of
the number of awards and half of the dollars. Specifically, 52
percent of award dollars for SBIR and 62 percent of award
dollars for STTR in fiscal year 2013.
Second, the participation of women-owned and minority-owned
firms in these programs has been declining. According to SBA's
SBIR annual report for fiscal year 2013, 15 percent of total
award dollars went to women-owned small businesses, 6 percent
to socially or economically disadvantaged-owned small
businesses, and 4 percent to hub zone-certified small
businesses.
I look forward to a frank discussion about the 2011 changes
and the opportunity for additional program improvements. It is
clear that the SBIR and STTR programs have promoted our shared
goal of fostering innovation, but we must continue to provide
vigilant oversight of these programs to ensure their maximum
effectiveness.
I thank the witnesses for being here today and express my
gratitude to the Chairman for calling this joint hearing with
our colleagues from the Science Committee.
Thank you, and I yield back.
Chairman KNIGHT. Thank you, Mrs. Murphy.
I now yield to the gentlelady from Virginia, the Chairwoman
of the Subcommittee on Research and Technology, Mrs. Comstock.
Chairwoman COMSTOCK. Thank you, Mr. Chairman.
America's future economic and national security depends on
global leadership in key areas of science and technology. Basic
research supported with taxpayer dollars through the National
Science Foundation, NASA, NIH, DOD, and other Federal agencies
underpins the key scientific discoveries that have created
today's world: the internet, wireless communications,
lifesaving medicines, lasers, and more.
At the horizons of basic research are breakthroughs in new
fields like quantum computing, artificial intelligence, and
bioengineering, breakthroughs that will continue to transform
our lives and the world we live in.
If basic research produces the scientific feedstock for
innovation, risk-taking small businesses are the catalyst for
converting knowledge into new products and services. They are
the catalyst for economic growth, for producing the family- and
community-sustaining jobs that we need so badly.
Congress enacted the Small Business Innovation Research, or
SBIR, program in 1982, followed by the Small Business
Technology Transfer, or STTR, program in 1992. These two
programs accelerate technological innovation and
commercialization of new products and services by small
businesses. They also help DOD and other agencies meet their
research and development needs.
Federal agencies with extramural research budgets of $100
million or more per year offer assistance through the SBIR
program. They are required to allocate just 3.2 percent of
their extramural research budgets for competitive grants to
small businesses, grants that underwrite the businesses'
technology development and commercialization initiatives.
The five Federal agencies with extramural research budgets
of at least $1 billion or more per year comprise the STTR
program. These agencies allocate an additional 0.45 percent of
their budgets for STTR grants. Although these sound like small
percentages--and they are--the total dollar numbers are huge.
Since Congress first authorized these programs, participating
Federal agencies have awarded more than $40 billion to small
businesses.
This is a huge cumulative taxpayer investment. And this
continuing investment in the program's potential to stimulate
needed economic growth makes it particularly important for
Congress to ensure the programs are being administered
efficiently and effectively.
There are many small business success stories in which SBIR
and STTR assistance have played a key part. Among the thousands
of small companies and start-ups that have used SBIR and STTR
to bootstrap their growth are dozens in my Northern Virginia
district.
These include 3 Phoenix, an engineering small business in
Chantilly, Virginia, that uses SBIR assistance to create
innovative electronic technology solutions to the Department of
Defense and the U.S. Navy, as well as private industry. The CEO
of 3 Phoenix, Inc., testified before our Subcommittee last
year.
Mosaic ATM, a Leesburg enterprise, has used SBIR to improve
air transportation efficiency and safety and push the envelope
on unmanned aircraft systems.
And Vidrio Technologies, an Ashburn small business, is
commercializing neuro-imaging tools and microscopes to provide
a better ``window into the brain.''
These and other businesses, both in our region and
throughout the country, are the people who will be able to
really hit those cutting-edge technologies and grow jobs in
this important space. I look forward to hearing your testimony
today.
Chairman KNIGHT. I thank the Chairwoman.
Chairwoman COMSTOCK. Oh, I am sorry. If I might, I did want
to mention also Progeny Systems of Manassas and Aurora Flight
Sciences of Manassas, Virginia. I did run out of time, but in
case you are here, those are a couple of others. So, my
apologies.
Chairman KNIGHT. Thank you very much.
And I now yield to the gentleman from Illinois, the Ranking
Member of the Subcommittee on Research and Technology, Mr.
Lipinski.
Mr. LIPINSKI. Thank you, Chairman. And I want to thank you,
Chairwoman Comstock, and Ranking Member Murphy for holding this
hearing to consider improvements to SBIR and STTR programs that
help small-business innovators turn their ideas into market-
ready products.
While we need to support strong investment in basic
research at our Nation's universities and Federal labs, we
should also support innovative and scalable policies and
programs to help move this taxpayer-funded research out of the
lab for commercial and societal you all benefit.
The SBIR and STTR programs engage innovative small
businesses in the Federal R&D system and play an important role
in technology transfer. We need to do what we can to make these
programs work even better, because America's economic
development and job growth depend on these small-business
innovators.
Eleven Federal agencies invest a total of $2 billion
annually in SBIR and STTR programs. These programs are a
critical source of early-stage R&D financing. They give small
businesses access to nondilutive capital for validation of
their ideas, product development, and testing, which often
leads to follow-on private sector funding and market
introduction.
Commercialization is one of the ultimate objectives of the
SBIR program. In last year's assessment of the SBIR and STTR
programs, the National Academy of Sciences found that about
half of all the programs' awardees generated commercial sales.
And in a survey of NIH awardees, about 27 percent of the
respondents had sales in excess of $1 million.
SBIR is funded as a carveout from funding for basic
research, including research carried out by many of the same
innovators who eventually apply for SBIR funding.
Unfortunately, for the most part, the overall pot of research
money is not growing, even as the SBIR program has grown by 30
percent since 2011.
We must continue to be sensitive to this balance between
funding for the pipeline of talent and basic research that
feeds the idea that an entrepreneur may eventually
commercialize and funding directly to entrepreneurial activity
itself.
Recent assessments of the SBIR program have provided us
with good ideas on how to make the program more efficient and
better able to achieve this goal of commercializing new
products and services. A great proven example of this is the
Innovation Corps program, also own as I-Corps. I-Corps provides
entrepreneurial education and other early-stage support for
innovators.
NSF launched I-Corps in 2011 and it has since spread to
other agencies, including DOE, NIH, DOD, USDA, and others.
Early returns show that entrepreneurs who go through this
program are more successful in their SBIR applications than
those who do not.
I-Corps and SBIR go hand in hand to strengthen the Federal
R&D ecosystem that connects research institutions and industry.
I believe we need to expand on the success of I-Corps by making
entrepreneurial education a central pillar of the SBIR program.
We need to expand access to I-Corps so it is available to SBIR
grantees from every agency. We also need to spread the I-Corps
model of entrepreneurial education throughout all phases of the
SBIR cycle.
Just as participating in I-Corps prior to applying for a
Phase I grant can increase a researcher's success rate,
participating in a startup accelerator that mentors innovators
and teaches them how to scale their companies can increase
their chances of commercial success.
There are many examples of successful accelerators already
operating, such as Y Combinator in Silicon Valley or the New
Venture Challenge at the University of Chicago. The SBIR
program should adopt a proven accelerator model for Phase II
grantees.
In addition to entrepreneurial education, innovators often
need funding for proof-of-concept work prior to applying for an
SBIR grant. In the 2011 SBIR reauthorization, I sponsored a
provision to create a Phase 0 pilot program at the NIH. The
Phase 0 proof-of-concept partnership pilot program utilizes a
small portion of the funds from within STTR. The NIH Centers
for Accelerated Innovations and Research Evaluation and
Commercialization Hubs, or REACH, are funded by this pilot
program. I look forward to hearing from Dr. Rubin about the
REACH Center that he directs at Stony Brook University.
Relatively small investments by agencies in all aspects of
pre-SBIR education and innovation could significantly improve
commercialization outcomes for the SBIR program and for
federally funded research more broadly.
Beyond commercialization, there are several other
significant issues that I know our Federal witnesses will
address this morning. We will hear from Mr. Neumann about ways
to better guard against fraud, waste, and abuse in the SBIR
program.
The 2011 SBIR authorization included provisions to improve
agencies' flexibility in making awards to small businesses,
provide funding for outreach activities and other
administrative issues, and increase data reporting. I look
forward to an update from Mr. Shepard on how the agencies have
implemented these new requirements, as well as feedback from
the small-business witnesses on what they believe has worked
and what still needs improvement.
Your testimony is important and helps us determine what to
address as we work on additional policy improvements for the
SBIR program. I look forward to working with my colleagues in
both Committees to continue updating and strengthening the SBIR
and STTR programs.
And I yield back the balance of my time.
Chairman KNIGHT. I thank the gentleman.
Okay. If Committee members have an opening statement
prepared, I ask that they be submitted for the record.
I would like to take a moment to explain the timing lights
for you. You have 5 minutes. We like to keep you two as close
to 5 minutes as we can. We will be very flexible. But as the
light starts to get going on the yellow light, you have a
minute left, and as the red light comes, you stop. We will give
you a little bit of flexibility there, but please try and keep
it as close as you can.
We are going to keep moving, because they are keeping on
moving on the floor. So our first witness is Mr. Joe Shepard,
Associate Administrator of the Office of Investment and
Innovation at the SBA. Prior to his appointment, Mr. Shepard
was most recently a partner and managing director of the
Archway Capital Management and was previously a director of
Bank One Capital Markets, the investment banking and private
equity bank group of Bank One Corporation, now JPMorgan.
In both positions, he was responsible for evaluating and
processing direct equity and mezzanine investments, as well as
providing merger, acquisition, advisory, and investment banking
services. In addition to his private sector accomplishments,
Mr. Shepard is beginning his second stint with the SBA, as he
was previously the associate administrator for investment from
2007 to 2009.
Thank you for your participation today, Mr. Shepard. I am
going to get through both, and then we will start back.
Our second witness is Mr. John Neumann, Director of Natural
Resources and Environment at the United States Government
Accountability Office, or GAO. He has 25 years of experience
with the GAO and currently manages a diverse portfolio of
audits in science and technology, food safety, and agriculture
areas in the Natural Resources and Environment team.
Other areas of his expertise include defense industrial
base and government-wide contracting issues. He has produced a
range of reports and testimonies on topics such as federally
funded research and development centers, defense supply chain,
protection of critical technologies, and, of course, the SBIR
and STTR programs.
We thank you, Mr. Neumann, for testifying today.
And we are going to go back to Mr. Shepard, and you have 5
minutes, and we welcome your comments.
STATEMENTS OF MR. JOE SHEPARD, ASSOCIATE ADMINISTRATOR, OFFICE
OF INVESTMENT AND INNOVATION, UNITED STATES SMALL BUSINESS
ADMINISTRATION; AND MR. JOHN NEUMANN, DIRECTOR, NATURAL
RESOURCES AND ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY
OFFICE
STATEMENT OF JOE SHEPARD
Mr. SHEPARD. Very good. Thank you, sir.
Chairman Knight, Chairwoman Comstock, Ranking Member
Murphy, and Ranking Member Lipinski, and other distinguished
members of this Committee, thank you for inviting me to be here
today to this joint hearing on ``Improving the Small Business
Innovation Research and Small Business Technology Transfer
Programs.''
On March 22, 2017, 43 days ago, SBA Administrator Linda
McMahon announced my appointment as the SBA's associate
administrator for the Office of Investment and Innovation, and
I am honored to be at the SBA and honored to be here today with
all of you.
The SBA Office of Investment and Innovation, which oversees
the SBIR and STTR programs, provides a front row seat to
observe the risks and challenges entrepreneurs face in their
attempts to bring innovations to the market. As a former
investor and intermediary in venture capital and early-stage
financings, I have seen these challenges firsthand in the
private sector. So I am excited to be part of an agency, to be
part of an office that can help make improvements to ease the
challenges and increase the likelihood of success for our
Nation's innovators.
Since joining SBA, I have started to familiarize myself
with SBA's oversight responsibilities for the SBIR/STTR
programs, which involve policy, outreach, collection,
maintenance, and publication of data, monitoring program
implementation, and reporting to Congress, agency improvement
suggestions, and coordination of the FAST program.
Like Administrator McMahon, I am committed to improving the
effectiveness, efficiency, and accountability of the SBIR and
STTR programs. I look forward to with working with Congress,
the Federal agencies, and all current SBIR/STTR program
participants so that SBA can fulfill its oversight role and
improve the programs.
A previous program improvement that has been beneficial to
the SBA and the Federal agencies is the 3 percent
administrative funding pilot that was introduced in the 2011
authorization. The pilot has entitled SBA to improve its
ability to gather data from the Federal agencies through the
SBIR.gov business intelligence platform and to raise program
awareness through several outreach activities.
In regards to outreach, SBA seeks to improve participation
by women, minorities, and underrepresented communities through
SBA's web-based training modules, train-the-trainer programs,
and the SBIR Road Tour. Through the SBIR Road Tour, program
managers from 11 participating Federal agencies, together with
SBA, will have made 53 bus stops in 35 States by the end of
2017. Past and current tours will have engaged over 10,000
innovators from throughout the U.S.
A major partner in SBA's outreach activities and efforts
have been universities. More than half of SBA's outreach
efforts have occurred in university facilities. SBA is working
with NASA on their outreach to Historically Black College and
Universities and other minority-serving institutions to raise
awareness about the opportunities that exist so that SBIR/STTR
programs can be accessed. These programs are an ideal tool for
the universities to commercialize their basic science and then
transition public investments to the marketplace.
A particular priority for Administrator McMahon and for
many members of these respective Committees here today is to
ensure that women innovators are aware of and are competing for
SBIR/STTR awards. This resonates with me as well, since my
wife, her degree and career is in the STEM field. SBA has made
increasing the participation of women in SBIR and STTR programs
a priority. SBA will continue to coordinate program outreach
activities with all 11 Federal agencies.
To conclude, for more than 25 years, these programs have
encouraged innovation and entrepreneurial activity in our
Nation. Today small businesses, through the current SBIR/STTR
programs, continue to be encouraged to develop and
commercialize their innovative products.
Also, as a father of an 11-year-old son with an interest
and an aptitude in science and technology and engineering and
math, I am keenly aware of the importance of these programs for
the next generation, the next generation of American
entrepreneurs, of small-business owners, and university
researchers, who will seek to make meaningful contributions
that will help our economy grow and strengthen in the future.
Thank you.
Chairman KNIGHT. Thank you very much, Mr. Shepard.
And we will go to Mr. Neumann.
STATEMENT OF JOHN NEUMANN
Mr. NEUMANN. Chairman Knight, Chairwoman Comstock, Ranking
Members Murphy and Lipinski, and members of the Subcommittee,
thank you for the opportunity to be here today to discuss our
work on the Small Business Innovation Research and Small
Business Technology Transfer programs.
As you know, Federal agencies award about $2 billion a year
through these small business research programs, and SBA and the
11 participating agencies each play an important role in
ensuring that these programs are working efficiently and
effectively.
With that goal in mind, over the last 5 years GAO has made
a total of 20 recommendations to SBA and the participating
agencies. To date, about one-third of those recommendations
have been implemented.
Today, I would like to briefly highlight three areas where
we have made recommendations to improve the oversight and
implementation of the SBIR and STTR programs: reporting
requirements, the administrative pilot program, and fraud,
waste, and abuse prevention requirements.
Over the last 5 years, we have made a number of
recommendations to SBA and the participating agencies to
improve their compliance with reporting requirements. For
example, SBA is required to report annually to Congress on the
agency's compliance with spending and other reporting
requirements for the SBIR and STTR programs.
In each of the last 4 years, we found that SBA had not
submitted timely reports to Congress. The most recent required
report that SBA issued was in March 2016 that covered spending
for fiscal year 2013. SBA officials have told us that they have
taken some actions to improve the reporting process, but they
have yet to submit the required reports to Congress for fiscal
years 2014, 2015, or 2016. We believe that providing Congress
with timely annual reports will improve oversight of these
programs.
We have also made several recommendations to SBA to improve
the implementation of the administrative pilot program. In
response to one of our recommendations, SBA has taken steps to
get better information from the participating agencies on how
they use the administrative funds rather than just the total
amount they spend on the program.
SBA has yet to implement another recommendation we made to
evaluate the potential constraints that have hindered some
agencies from participating in the administrative pilot
program. SBA's evaluation would be useful if Congress decides
to continue the program beyond this fiscal year.
Lastly, we made four recommendations to SBA to improve the
implementation of fraud, waste, and abuse prevention
requirements for the SBIR and STTR programs.
Agencies that participate in the programs are required to
implement certain activities to prevent fraud. For example,
agencies are required to list information on their SBIR program
websites on successful prosecutions of fraud in the programs.
While SBA has updated its guidance to the agencies in 2012,
we have found that they have taken few actions since then to
oversee the agencies' implementation of these requirements. We
recommended that SBA, in its oversight role for the program,
take steps to ensure that agencies are clear on the fraud
prevention requirements and are implementing them. In addition,
we recommended that SBA evaluate the requirements to determine
if they are appropriate and meeting the intended purpose of
preventing fraud in these programs.
We look forward to reviewing SBA's progress in implementing
these important recommendations.
This concludes my prepared remarks. I am happy to respond
to any questions you may have.
Chairman KNIGHT. Thank you very much, Mr. Neumann.
And we will continue on. We are getting very close to
voting on the floor, but I think we will continue on and try to
get through my questions and maybe the ranking member's.
What we will try to do is keep our questions down to 5
minutes and move this through the panel as quickly as we can,
because we would like everyone to be able have a chance to ask
questions if they would like to.
So, Mr. Shepard, I will start off. In the past agencies had
a less than favorable view of SBIR programs because it was
statutorily mandated that no SBIR funds from the allocation
could be used to administer the programs, leaving agencies to
find the money somewhere else. The 3 percent administrative
funding pilot included in the 2011 reauthorization attempts to
alleviate those concerns.
Do you feel that by allowing agencies to administer the
program with SBIR funds it has perhaps changed the perception
of the program and allowed it to grow in popularity within
agency circles? And if not, how can we?
Mr. SHEPARD. Thank you for your question, Mr. Chairman.
Absolutely, the administrative funding pilot and the fees,
I think the response that I have heard so far from the SBA team
is that the different Federal agencies that have that are doing
a good job of utilizing that. It has been very helpful for them
in terms of their outreach efforts.
And it has been very helpful for the SBA as well in terms
of coordinating with them in terms of outreach primarily, and
also helping with the flow of data and the communication back
and forth in terms of the data-collection effort that is
necessary and the timely transmission of that data to SBA.
So I think it has been a very helpful component to the
program.
Chairman KNIGHT. Good. I find that many people don't know
what SBIR is, or STTR, and when they do, they like what it
brings. It brings a value of innovation from small companies
that might have been, I am not going to say overrun by the
system of maybe bigger players, but it allows that innovation
to come to the forefront. And sometimes you don't know what you
don't know. And we want that to happen. We want that to be able
to come forward.
So, Mr. Neumann, in your most recent April 2017 report, the
GAO states that over the last 7 years the offices of inspector
generals at participating agencies have investigated 110
instances of potential fraud in these programs. Of the 110
instances, only 14 were found to be actual cases of fraud.
It seems like a very low number, meaning the SBIR program
is run pretty efficiently from a waste, fraud, and abuse
standpoint.
Comparatively, how does the SBIR program stack up to other
programs in this regard?
Mr. NEUMANN. Well, we didn't compare the SBIR fraud
prevention to other fraud prevention programs. But in talking
to the OIGs, they certainly have higher priorities for some of
their larger-dollar-value programs. For example, DOD is more
interested in pursuing contracting fraud. With the limited
resources of the IG they tend to pursue that. But,
nevertheless, they didn't see that there was significant fraud
in the SBIR program.
And out of the time period you cited there, the 110
investigations over a 7-year period, that is out of 38,000
awards. So they view the SBIR fraud as being a relatively small
problem. But, nevertheless, they did want to devote resources
to that to make sure that they can prevent any future fraud.
Chairman KNIGHT. Absolutely. And we are always looking to
lower all waste, fraud, and abuse, of course, in government as
a whole. But we are looking at 12 percent here of cases found
that were actually fraud and abuse. So I think that that is a
fairly low percentage.
Obviously, we would like to get that down to zero, of
course, but as we are looking at these types of organizations
and maybe bureaucracies and government issues across the board,
if we were at 12 percent across the board, I think that in many
regards we would consider that somewhat of a success.
So I am going to move on to the ranking member so that she
can get her questions in. And if we have time at the end, we
can always go through with a second. But I will yield to the
ranking member.
Mrs. MURPHY. Thank you, Mr. Chairman.
Let me first say, Mr. Shepard, that as a parent of a 6-
year-old boy and 3-year-old girl, I appreciate and share your
commitment to fostering STEM opportunities for the next
generation.
My question for you is that the 2011 reauthorization allows
agencies to help facilitate the commercialization of the
research through the use of Phase III awards, including sole-
source contracts. However, we are hearing from small businesses
that agencies are not using this tool.
Mr. Shepard, why is there such a reluctance in awarding
sole-source contracts?
Mr. SHEPARD. I know that my focus so far with the team,
commercialization is essential, obviously, and it is the intent
of the program to take us from innovation to commercialization.
I know that the discussions that we have had with program
managers, the discussions that I had with the team at SBA have
really focused on trying to educate--we talked about
entrepreneurial education earlier in Congressman Lipinski's
comments--is to educate those entrepreneurs that have made it
to the Phase II process, that you are going to come to the end
of that, of that Phase II process quickly. It can be within a
year, if it is a million-dollar grant.
And they need to start preparing for that really at the
beginning of that process to start preparing for
commercialization. So we have talked about raising awareness
for that. We have talked about bringing in a business
development person to help them and to get them to that
commercialization point.
To your specific question, I am going to have to look into
that more in terms of any kind of reluctance. But we certainly
meet with and work with our program managers on a regular
basis, and that is easy to investigate, easy to look into, and
we will do so on your behalf.
Mrs. MURPHY. Great. Thank you. I would appreciate that.
Then my next question is for both Mr. Neumann and Mr.
Shepard.
One of the statutory objectives of the SBIR program is to
increase the participation of minority- and women-owned
businesses in the R&D arena. Yet, we are seeing participation
decrease. For minority-owned firms, percentages are in the
teens, and the percentages are in the single digits for women-
owned firms. Why this objective so challenging?
Mr. SHEPARD. I will go first. That is obviously
frustrating, and it is one of the mandates of the SBIR, is to
reach out to those groups. And the only thing that we have
continued to talk about, again, during my short time has been
awareness, awareness, awareness, to make them realize that that
access is available to them. I had mentioned in my opening
comments about our work with the universities and going
specific to universities.
We have started to make, and I think you will see in some
of the activities and awareness activities certainly, where we
will start to raise the awareness level, and I hope that it is
visible. But it is a challenge, and it is something, again,
that we talk with the program managers at all of the Federal
agencies about addressing. And it needs to be addressed, and
certainly during our time we will make efforts to do so and
raise that awareness.
Mrs. MURPHY. Great. Thank you.
Mr. NEUMANN. GAO has been mainly focused on expenditure
compliance and the fraud prevention requirements based on
congressional direction. But we would be happy to work with the
Committee staff to do additional work in this area if that
would be useful to you.
Mrs. MURPHY. I think that I would be interested in seeing
more information about that. Thank you.
Again, a question for both of you. The 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? And if so, have
there been any cases where a company was made ineligible for
the year?
Mr. NEUMANN. Well, I can tell you that we just began work
last month for Chairman Smith of the House Science Committee on
how SBA has developed benchmarks and what agencies do to ensure
that they are not making awards to ineligible companies. We
expect to have this preliminary work done by the end of May,
and we will plan to brief the staff at that time, and we will
work with your staff on getting information to you as well.
Mrs. MURPHY. Great. Thank you.
Mr. SHEPARD. And I am not sure about that specific report.
We will certainly work with the Committee, and we will work
with our colleagues in GAO to assist in that effort and visit
with our program managers to make sure that that compliance
issue is addressed.
Mrs. MURPHY. Great. Thank you.
I yield.
Chairman KNIGHT. And I thank the gentlelady.
We are going to take a short recess. We have a three-vote
series, and we are about 7 minutes away from the first vote
ending, which means we have about 15 or 20 minutes on that
vote. And we will probably be back in around half an hour. So
we will take a short recess.
[Recess.]
Chairman KNIGHT. Okay. Thank you all for that brief recess,
and we will be back.
And we are going to continue with questions. Ms. Comstock
had to leave the room for a meeting real quickly, so we are
going to go to the ranking member, Ranking Member Lipinski, for
his questions--and we are going to put a bookmark there.
Chairwoman COMSTOCK. It is okay. You go ahead.
Chairman KNIGHT. Okay. We are going to continue on.
Mr. Lipinski, you have the floor.
Mr. LIPINSKI. Thank you, Mr. Chairman.
I thank our witnesses for being here and waiting us out
there. I am sure we will make it worthwhile here.
I had, as Mr. Shepard, you had mentioned in answer to
another question, I had talked about commercialization efforts.
The 2011 reauthorization required agencies to increase their
efforts to help commercialized technologies. So I was wondering
what you could tell us about what the participating SBIR
agencies have done to meet the goal of increased
commercialization at each phase of the SBIR program.
Mr. SHEPARD. I appreciate the question, Congressman
Lipinski.
You know, as I have been in, again, a short period of time,
started to look at some of the reports and some of the dialogue
that takes place between SBA and the program managers, I know
it is an important focus of ours and will continue to be in the
oversight role that the SBA has.
That is one I don't have specific information in terms of a
report, in terms of conversions, which I think would be
interesting to see. We do have some information--I don't have
the data in front of me now--in terms of conversions from Phase
I to Phase II, obviously, but then that focus on Phase II into
the commercialization.
I do know one of the challenges--and, again, we will
address it as best we can--is the self-reporting factor that
you have from the small businesses who actually leave the
program, go out and commercialize, and then making sure that
they report back. But we will be in contact with your staff in
terms of a followup on that.
Mr. LIPINSKI. And how do you feel about what I had talked
about in my opening about having, sort of, maybe, accelerators
give mentoring to Phase II grantees to spread, sort of, what we
have right now with I-Corps early on but have that at the Phase
II level, some sort of education and maybe through some of the
successful accelerators that we already have out there?
Mr. SHEPARD. Yeah, I appreciated and understood the comment
about entrepreneurial education that you made and, certainly,
in the university setting, where you have scientists that might
not have a business development perspective about their product
that is coming out of Phase II and is going to be
commercialized.
So having that component in terms of the educational
awareness, the educational training, be it in the accelerator
model or as part of the Phase II, is going to be important for
those, certainly, in the academic setting, to be able to
transfer their ideas and their innovation as they start going
to market and try to commercialize that. So I think it is
absolutely an important thing to focus on.
Mr. LIPINSKI. Well, as we move forward in this
reauthorization, I think it is something that I am going to
continue to work on and work with my colleagues--I would like
to work with you, Mr. Shepard--and figure out the best way we
can do this.
I think there is widespread support, bipartisan support,
for SBIR and STTR, and we all want to make it work as well as
possible and succeed. And I think adding more of an educational
aspect could be very helpful. I-Corps certainly has proven to
be successful.
As a former academic, I know that these are things that are
not taught as you are going through grad school and certainly
not something that you know as a professor, no matter how good
you are in your field and how well you are doing your work. You
may have great discoveries and great ideas but may not know how
to actually move that forward. And that is what these programs
are all about, is finally getting to a good outcome--a new,
innovative small business.
So thank you very much.
Mr. SHEPARD. I agree, Congressman. Thank you.
Mr. LIPINSKI. And I yield back.
Chairman KNIGHT. Thank you very much.
And we are going to the Chairwoman of the Subcommittee on
Research and Technology, Ms. Comstock.
Chairwoman COMSTOCK. Thank you, Mr. Chairman.
How do we measure success under SBIR and STTR? Is it
patents awarded, small business revenue, employment growth,
that ability to get to that next stage? What are some of the
success markers that we should be looking for?
Mr. SHEPARD. Very good question, Congresswoman. I think all
of those that you mentioned, obviously, are good markers. You
know, the transition percentages from--you know, obviously, the
ultimate objective with meeting the research and development
needs of our country, inspiring innovation, and then
commercializing, any kind of markers we can put down for that.
As a new administration, we will look and see if there are
some metrics that we need to add. We are fully committed, as
you heard from Administrator McMahon, to making sure these
programs are efficient, to make sure that they are effective,
and to make sure that programs are meeting the types of
outcomes that they are intended to meet.
So adding additional metrics is something that we can look
at to make sure that we are measuring appropriately, and then
working with Congress and the program managers, obviously, as
they report back to the SBA in its oversight role to make sure
that we are measuring correctly.
Chairwoman COMSTOCK. All right.
And Mr. Neumann?
Mr. NEUMANN. We haven't looked at the metrics in the work
that we have done. We have mostly focused on, you know, the
spending compliance and the fraud prevention requirements in
the work. But, certainly, those are important metrics, and we
would be interested in considering looking at that in future
reviews.
Chairwoman COMSTOCK. Okay.
And then we have heard from some of our folks who have been
involved that get in there at that entry level and then they
aren't supported in going to that next level, or they feel like
their good ideas may be otherwise appropriated throughout
agencies, and then they don't get that credit and opportunity.
Do you see that? And how do we provide the incentives for
people to come in and know that, well, if this takes off, you
are going to be a beneficiary, it is not going to be
appropriated by others?
Mr. SHEPARD. That is, again, an excellent question. You
want to engage the entrepreneurial community to make sure, if
they come in for a Phase I, that they have some assurance that
there won't be, certainly, a hindrance with the program moving
into a Phase II.
I don't have data on that. I can certainly look into that
and report back. But we certainly want to have the program run
in a way that there isn't a hindrance to moving from Phase I to
Phase II for those innovators that are part of the program.
Chairwoman COMSTOCK. Okay. And I might have some followup
questions, because we have had some folks talk to us about
that. I don't have all the details right in front of me, but
that has been a concern----
Mr. SHEPARD. Yeah, very good.
Chairwoman COMSTOCK.--that has been raised.
Mr. SHEPARD. Yeah. We would be more than happy to look into
those details, those specific cases, and then address them on a
one-by-one basis and communicate back to the Committee on that.
Chairwoman COMSTOCK. Okay.
Mr. Chairman, I will yield back.
Chairman KNIGHT. Thank you very much.
And, at this time, I would like to welcome Mr. Estes to our
Small Business Committee and to our Subcommittee on Workforce
and Contracting and ask him to ask questions for 5 minutes.
Mr. ESTES. Thank you.
Mr. Shepard, in your testimony, you talked a little bit
about the administrative funding pilot program. And can you
talk a little bit about why you see the great value in that and
what you are getting out of that?
Mr. SHEPARD. I think the primary benefit that we have heard
from the program managers at all of the Federal agencies that
are participants in the programs has been their ability to do
pilot programs, to raise awareness, and to focus on raising
awareness for the programs. That has been one of the main
benefits.
One of the critical things, obviously, is being able to
collect data, have timely data submitted. And I know that the
program offices have also used that administrative funding
pilot, the proceeds from that, in terms of data collection and
data reporting.
And we have seen an increase in that from the team and the
visits that I have had with them thus far. And so, really,
awareness and data have been two areas where they have been
able to focus, that they didn't focus on so much before, with
the funding that became available through the administrative
funding pilot.
Mr. ESTES. I know one of the earlier questions was talking
about some of the analysis there. I know you have had, what, 43
days to get up to speed on this. Do you have an approach that
you are going to use that data to analyze the good and the bad
with?
Mr. SHEPARD. There is a lot of data. And, absolutely, yes,
we will do so. Yes, sir.
Mr. ESTES. Okay. Thank you.
Mr. Neumann, what kind of changes are you looking at making
in your policy directive and some of the thought process that
you are having in terms of proposed regulations and looking at
doing some things differently there?
Mr. NEUMANN. Well, we have made a number of recommendations
to SBA to make updates to the policy directives on a number of
issues, and they have been taking steps towards some of those
things.
I think, just getting back to the administrative pilot
question you asked about, I think we see SBA being in a unique
position to really do a thorough evaluation of how those funds
are being used and determine if there are constraints to
agencies being able to use them effectively.
So I think Mr. Shepard's discussion of evaluating that data
will be really important to improving the success of that pilot
if it is extended beyond this fiscal year.
Mr. ESTES. Okay. Thank you.
Mr. Chairman, I yield back.
Chairman KNIGHT. Thank you very much.
And we would like to go to Mr. Lawson for his 5 minutes of
questioning.
Mr. LAWSON. Thank you very much, Mr. Chairman.
And welcome to the Committee.
My first question centers around, yesterday, we hosted a
hearing on the growth of accelerators in the small-business
space.
Mr. Shepard, can you describe the connection between the
accelerators and the SBIR and STTR program and how SBA can work
hand-in-hand to guarantee that both of these programs can
coexist with the accelerators?
Mr. SHEPARD. Thank you for your question, Congressman.
I have and the SBA has accelerator data from before that we
are reviewing to see the types of impacts that the program has
had. And so we are in the process of doing that right now, from
the previous accelerator program.
I do know, initially, from the initial look, that having
accelerator entities throughout the U.S. that understand the
SBIR/STTR program and being able to educate those communities
locally about the program--so, again, it is awareness and it is
education--has really been the primary link that I have seen so
far in reviewing the information between that linkage you are
talking about between accelerators and the programs.
Mr. LAWSON. Okay.
Mr. Neumann, what changes have you seen over the past
several years in the small-business spaces that have impacted
the success of the SBIR and the STTR program? And what changes
do you see on the horizon for these programs?
Mr. NEUMANN. Well, in our review of expenditure compliance,
you know, agencies are generally spending what they are
required to spend on the program. So we are seeing improvement
in that. We are seeing improvement in terms of the information
that SBA is collecting. And we would like to see some
additional improvements in SBA's evaluation of the constraints
of various aspects of the program, including the administrative
pilot program, and also evaluating the effectiveness of fraud
prevention efforts.
So I think there is some more that can be done there, but
we have been seeing improvement overall in at least the
expenditure compliance side, that agencies are spending what
they are required to spend for the programs.
Mr. LAWSON. Okay. Thank you.
And this question can be to both of you all on the panel. I
represent Jacksonville and Tallahassee, which includes major
universities, including Florida State University, which has a
major innovation hub called Innovation Park, which is not too
far from where I live.
And what do you see on the horizon in terms of the
universities? Because my district also includes two
historically African American colleges, which you talked about
earlier, Mr. Shepard, which is Edward Waters and Florida A&M
University.
The question is, how can we create a pipeline to HBCUs'--I
heard you before we took off to go vote--graduates into the
STEM field that would help these students create their own
small businesses that can eventually take part in such programs
like SBIR and STTR?
Mr. SHEPARD. Very good question and, obviously, in the
opening remarks, Congressman, a focus and a concern of ours for
the program managers and then the SBA.
I think, you know, I have talked about awareness, I have
talked about education. One of the things that--and visiting,
being there physically, connecting those universities with the
small-business development centers that the SBA has. Those
entities are well-versed in the SBIR/STTR programs.
We have an increasingly more robust presence through
sbir.gov for training modules, train-the-trainer tools, that
allow students, certainly, that are pursuing their
undergraduate, master's degree, doctorate degrees to go there,
as well, and use those resources to learn more about the
program.
So just a couple of thoughts and a couple of ideas about
some resources that are currently out there. But, at the end of
the day, it is really awareness and encouraging them to find
out more about those programs and use the resources that are
existing for them to pursue those opportunities that are there
for them to access.
Mr. LAWSON. Okay. Thank you.
I yield back.
Chairman KNIGHT. Thank you very much.
And I am proud to have our Committee Chairman for Small
Business, Mr. Chabot, here, and I would like to give him some
time to ask questions.
Chairman CHABOT. Thank you very much. I will be relatively
brief, Mr. Chairman, because I just stepped in, and I had a
number of other meetings. But I want to thank you for your
leadership on this committee. We are very pleased with what we
see so far, and keep up the good work.
Mr. Shepard, I just have one question. I will direct it to
you, if I can. Obviously, one of the Congress' and this
committee's principal responsibilities is oversight, making
sure that the tax dollars that the American people send to us
are used efficiently and that everything is going according to
plan.
And I know you have only been in your position for, I
think, a grand total of, like, 38 days now or so, so not too
long, so I am certainly not directing this at you. But the
previous administration was somewhat remiss in getting the
reports back so we can do the appropriate oversight on
schedule, shall we say--pretty far behind schedule, I have to
say.
When might we expect fiscal year 2014, fiscal year 2015,
fiscal year 2016 annual reports to come to us so we can do the
appropriate amount of oversight so we can guarantee that the
American tax dollars are being spent in the way the American
people have a right to expect, and that is that they are most
efficiently spent?
Mr. SHEPARD. I appreciate the question, Congressman Chabot.
One of my first questions when I arrived into the office
and a fiscal year end 2014 report was put in front of me was,
``I think there is a problem with the date. I think this should
say 2016.'' And I soon found out that I had and the
administration had inherited some tardiness in terms of some of
those reports.
In regards to the fiscal year end 2014, we immediately took
action on that in terms of making sure the appropriate
clearance process took place inside the SBA. And that is taking
place now. So we are looking at it internally and hope to have
that forthcoming.
We share the concern. There is an intent to--we need to
report to Congress, and we need to do it in a timely manner. So
I share the concern; the Administrator shares the concern. And
we are in the process of doing that with the fiscal year end
2014 annual report on the program and also have initiated and
are in process on the fiscal year end 2015 report, as well. So
both of those are taking place. And then we will soon start on
the fiscal year end 2016 report, as well.
So you will see more timely annual reports forthcoming out
of this office going forward. So I appreciate the concern. It
is a concern that we share. And it is part of our job to report
on a timely basis, and we will do so.
Chairman CHABOT. All right. Thank you. I would, you know,
as chair of the Committee, strongly urge you to do that in as
expeditious a manner as possible so that we can do appropriate
oversight.
Thank you very much. I yield back, Mr. Chairman.
Chairman KNIGHT. Thank you very much. And I appreciate the
leadership from the Chairman.
And we will now go to Mr. Tonko for his questions.
Mr. TONKO. Thank you, Mr. Chair.
As the Science Committee's only New Yorker, I would like to
start off by welcoming SUNY Stony Brook Professor Clinton
Rubin.
Thank you for joining us today.
He is also director of the Long Island Science Hub and will
participate in our second panel. And I thank him for educating
us today but, more importantly, thank him for his passion, the
passion that he brings to the table and for all of his hard
work. It is much appreciated.
I am excited that we are holding this hearing today because
I strongly believe in the value of the SBIR/STTR program. This
program has proven to be one of the most successful Federal
programs for technological innovation in United States history,
delivering more than 70,000 patents, close to 700 public
companies, and approximately $41 billion worth of venture
capital investment, as well as valuable innovations in
agriculture, in defense, in energy, health sciences, in
homeland security, in space and transportation and many other
fields.
Through Phase I and Phase II SBIR, countless jobs have been
created in my district in the capital region of New York. It is
through programs such as SBIR that my district has developed
the underpinnings of support for a boom in health technology
innovation and economic development.
This funding has resulted in cutting-edge technologies,
well-paying jobs, and overall has been a recipe for successful
innovation. The capital region is an exponentially growing area
for clean energy technology and biotechnology, and I want to
ensure that the support for these areas only continues to grow
stronger. Smart investments like SBIR and STTR will allow for
this continued growth to happen.
I am proud of and inspired by the research and innovation
in small businesses in the capital region, which are venues
that have greatly contributed to advances in science and
technology across the board. From conversations I have had with
small business leaders, I can see that they value this program.
Dr. Clinton Ballinger, the CEO of SelfArray, Inc., told me,
``My biggest issue as a CEO of a startup is to keep the Federal
SBIR program funded. The venture capital community has grown
very risk-averse and simply does not invest until a new
technology is nearly developed. Some technologies cannot be
self-funded by the inventors, and this is where the SBIR
program contributes greatly.''
I also heard from Ted Eveleth, the CEO of HocusLocus, LLC,
located in Albany, New York. Ted said that the reality he
encounters is that companies don't perform research and
development anymore because it is too risky and shows up as an
immediate expense. Ted said, and I quote, ``This is true from
life sciences companies to old line manufacturing companies.
Without the SBIR program, innovation in the United States would
come to a screeching halt.''
While in Austria, Ted listened to a panel discussion with
representatives from four different countries talk with awe
about the SBIR innovation program, their machine that they are
trying to imitate in their own countries. Ted summed up their
thoughts by saying that ``the SBIR program makes the United
States the envy of the world.'' I could not agree more.
So, with that being said, Mr. Shepard, the 2011
reauthorization allows NIH, DOD, and the Department of
Education to conduct a pilot program to allow a small business
to receive a Phase II award without having received a Phase I
award, also known as the Direct to Phase II Pilot. I have some
concerns that allowing companies to skip Phase I would shut out
some small businesses from competing for SBIR award funding.
Can you please elaborate on Direct to Phase II funding and
efforts to prevent marginalization of some of our small
businesses?
Mr. SHEPARD. Thank you for your question, Congressman.
I am very aware--again, new in the job--about the Direct to
Phase II. The initial data that I have seen is--and I, quite
frankly, was a little surprised that it isn't utilized more. It
has been very, very nominal. We will report on that and
understand the concern about a skip in the Phase I that might
occur.
I will, again, just make sure, you know, that I focus on
that and that I will be able to communicate back a little more
data about what is actually occurring. Again, my summary is
that going direct to Phase II hasn't been as high an activity
level as one might expect, but we will report back on that.
Mr. TONKO. Absolutely. I think it is very important to
review what that impact is going to look like. We don't want to
wreck a good program. We don't want to marginalize any of our
small businesses.
So, with that, I thank you for responding and will look
forward to the reviews that you will conduct.
Thank you, and I yield back, Mr. Chair.
Chairman KNIGHT. Thank you very much.
And I think we have had a spirited first panel. And I would
like to take a little bit of time, thank you very much for
coming in. Thank you for answering the questions in an honest
and open way.
This is a good hearing where we are trying to understand
how this program works, that there are possibilities to make it
better, but it is working and helping to bring forward that
innovation that we crave here in America. And we don't want it
stifled, and we don't want it stamped out. We want to encourage
that. So I think that these programs do that, and that is part
of what this panel is bringing forward.
So, with that, I will thank the panel and excuse them. And
we will ask for just a very short break so we can bring the
second panel through.
Mr. SHEPARD. Good. Thank you.
[Recess.]
Chairman KNIGHT. Again, thank you to the first panel.
And we are moving on to our second panel. We are going to
go down the line and introduce--I think the Chairwoman will be
back shortly and she can introduce Dr. Langford, but we might
skip him on the introductions and wait for her to come back.
We are not forgetting you. We will get there.
Just like that. That is how Congress works. We ask and it
happens. Sometimes.
Our first witness on the second panel is Mr. John Clanton,
Chief Executive Officer of Lynntech, Incorporated, in College
Station, Texas.
Lynntech was founded in 1987, providing early-stage
scientific research and technology development for government-
sponsored initiatives. Key Lynntech projects include high-
performance fuel cells for the military, enhanced search and
rescue components for the Coast Guard, and cost-effective
biohazard detectors for Homeland Security. The company
currently employs 100 scientists, engineers, and support staff.
Mr. Clanton has endowed a faculty fellowship at Texas A&M's
Mays Business School, and he is also an Eppright Distinguished
Donor to the 12th Man Foundation.
Thank you for being with us today.
I will now yield to the Chairwoman of the Subcommittee on
Research and Technology, Ms. Comstock, for the introduction of
our next witness.
Chairwoman COMSTOCK. Thank you.
I am honored to introduce Dr. John Langford, Chairman and
CEO of Aurora Flight Sciences Corporation, which he founded in
1989 and is headquartered in Manassas, Virginia, my district.
Prior to Aurora, Dr. Langford worked for the Institute for
Defense Analyses, where he organized and led a series of human-
powered aircraft projects that shattered the world distance and
endurance records for human-powered flight. He also worked for
the Lockheed Corporation as an engineer on the development of
the F-117 stealth fighter.
Dr. Langford also cofounded Athena Technologies in 1998,
serving as CEO and Chairman before the company was sold to
Rockwell Collins in 2008.
Dr. Langford received his bachelor's degree in aeronautics,
a master's degree in aeronautics and astronautics, a master's
degree in defense policy, and a Ph.D. in aeronautics and public
policy, all from MIT.
And we are delighted to have you here today.
Chairman KNIGHT. Very good.
Up next is Mr. Ron Shroder, Chief Executive Officer,
President, and Chairman of the Board of Directors of Frontier
Technology, Incorporated, or FTI, in Beavercreek, Ohio, a place
I am very familiar with, growing up at Wright-Patterson.
Mr. Shroder has nearly 35 years of diversified technical
and management experience in the Department of Defense,
commercial, and other Federal markets. During his tenure, FTI
was award the SBA Tibbetts Award for the very best in Federal
innovative research. He has been a member of the Governor's
Ohio Aerospace and Aviation Technology Committee and is the
former national president for the Defense Planning and Analysis
Society.
We thank you, Mr. Shroder, for being here.
And I would like to now yield to the ranking member of
Contracting and Workforce, Mrs. Murphy, for her introduction of
our next witness.
Mrs. MURPHY. Thank you.
It is my pleasure to introduce Ms. Angela Alban, president
and CEO of SIMETRI, a small business that develops and designs
medical training devices to improve the performance of military
personnel as well as physicians, nurses, and first responders.
SIMETRI has received a 2014 Phase I and 2015 Phase II SBIR
award from the Department of Defense. I am very proud to say
that Ms. Alban's business is headquartered in my congressional
district in the city of Winter Park.
Ms. Alban also serves as the chair of the National Center
for Simulation board of directors, the charter school board
chair for United Cerebral Palsy of Central Florida, and a
member of the Orlando Regional Chamber of Commerce board of
directors.
She has a bachelor of science degree in mathematics and
computer science from Emory University and a master of science
degree in computer engineering from the University of Central
Florida.
Welcome, Ms. Alban, and thank you for testifying today.
Chairman KNIGHT. Very good.
And our next witness is Dr. Clinton Rubin, State University
of New York's Distinguished Professor, Chair of the Department
of Biomedical Engineering, and the Director of the Center for
Biotechnology at Stony Brook University in Stony Brook, New
York.
Dr. Rubin's work is targeted towards understanding the
cellular mechanisms responsible for growth and healing. He has
published over 200 peer-reviewed papers and 50 book chapters in
his field and holds 22 patents, with 14 pending, in the area of
wound repair, stem cell regulation, and treatment of bone
disease.
We thank you very much, Dr. Rubin, for being here today.
And, again, it works like a stoplight. And since I was a
cop for 18 years and not a very good ticket writer, I will be
very, very lenient. But just know it goes green, yellow, red,
and that is just the way is. So when you are at red, please
kind of start to wrap it up.
And we are going start with Mr. Clanton, and you have 5
minutes.
STATEMENTS OF JOHN CLANTON, CHIEF EXECUTIVE OFFICER, LYNNTECH,
INC.; JOHN S. LANGFORD, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
AURORA FLIGHT SCIENCES CORPORATION; RON SHRODER, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, FRONTIER TECHNOLOGY, INC.; ANGELA M.
ALBAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SIMETRI, INC.;
AND CLINTON T. RUBIN, SUNY DISTINGUISHED PROFESSOR AND CHAIR,
DEPARTMENT OF BIOMEDICAL ENGINEERING, DIRECTOR, CENTER FOR
BIOTECHNOLOGY
STATEMENT OF JOHN CLANTON
Mr. CLANTON. Thank you.
Chairman Knight and Ranking Member Murphy, Chairwoman
Comstock and Ranking Member Lipinski, members of the
Subcommittee, on behalf of Lynntech, I would like to thank you
for the opportunity to appear before you today and offer our
company's views on improvements to the SBIR program.
I have included in my statement today a few examples of
victories that our scientists and engineers have had to give
you some insight into the daily life and times of a small
research company.
The first example is a project to develop a hypoxia
training device for naval aviators, a project that started
about 3 years ago. The Navy identified a need for a flexible,
programmable, and inexpensive device to train aviators to
recognize the early signs of hypoxia in flight.
Next week, we will be starting a Phase II.5 contract to
prepare the device for manufacturing. And the week after that,
we will be attending an event in Rotterdam at the request of
several NATO air forces to demonstrate the device for their
potential procurement.
As it relates to the SBIR program, first let me say that we
applaud past efforts to make the SBIR program more flexible.
Those changes allow agencies to piggyback on prior investments
and bring technologies to market at a rapid pace. We were
excited and appreciative to see that the SBIR program was
reauthorized last year but believe an opportunity was missed by
not adopting several measures that were being considered for
inclusion in the program. We are hopeful that these
improvements can make their way into a new bill going forward
with the joint support of both the Science and Small Business
Committees.
I will summarize our recommendations, which we believe
would improve the overall success metrics of commercialization.
First, as has been discussed, several pilot initiatives
from the 2011-2012 reauthorization are set to expire at the end
of fiscal year 2017. Two of these initiatives that have had a
notable impact are the Direct to Phase II awards and the
addition of the 3-percent administrative pool. We strongly
believe that both have had a positive impact, and we encourage
you to make them permanent elements of the program.
The Direct to Phase II award allows the government and
industry to capitalize on work previously done in a research
area and to use that prior work to advance the
commercialization path for important technologies.
As it relates to the Direct to Phase II success, Lynntech
has another project that I want to tell you about. This
particular project began life as a NASA-funded Phase I effort
to create an inexpensive and highly precise fluid pump for
astronaut environmental suits.
The same underlying technology was used to respond to an
OSD requirement for an en-route care drug-infusion pump for
forward-deployed soldiers. Successful work in these past
projects led the Air Force to award Lynntech a Direct to Phase
II award to adopt the base technology into a multichannel drug-
infusion pump.
The second pilot program, the 3-percent administrative
pool, has been an effective vehicle to assist acquisition
managers with improved SBIR transition strategies and movement
towards Phase III initiatives. We believe that the 3-percent
pool functions as a productivity lever for the program offices,
and we ask that you make it permanent as well as clarify
congressional intent as to using the pool for commercialization
support.
Other recommendations that we support include: clarifying
congressional intent by making it clear that subsequent Phase
II awards are not subject to a competitive acquisition process
since the competitive pool was created by the Phase I process;
allowing Federal agencies to award up to $3 million on Phase II
awards; allowing Federal agencies to make multiple Phase II
awards in support of commercialization efforts; and, finally,
allowing for cross-agency Phase II awards in circumstances
where small business has received a previous SBIR award from
another agency. We believe this needs to have clearer
definition in the SBA policy directive.
Lastly, I want to emphasize the symbiotic relationship that
Lynntech and most other SBIR companies have with their
university partners. Currently, our university partners receive
nearly 20 percent of our contract awards in the form of
subcontracts. We believe there are unlimited opportunities for
universities and SBIR participants to complement each other's
core competencies in support of the mutual objective of
transitioning technologies out of the lab and into the
marketplace without directly competing for taxpayer dollars.
I appreciate the opportunity to offer Lynntech's position
on program improvements that will enhance the commercialization
of SBIR-funded development. I stand ready to answer any
questions you may have.
Chairman KNIGHT. Thank you very much.
And, Dr. Langford, you are now recognized for 5 minutes.
STATEMENT OF JOHN S. LANGFORD
Dr. LANGFORD. Thank you very much, Chairman Knight, and
thank you, Chairwoman Comstock and other members of the
Committee. It is a real thrill to be here today to have the
chance to talk with you about a subject that is near and dear
to my heart, which is the SBIR program, and also specifically
to have a chance to talk to you, because I have spent a good
part of my life building airplanes in the Virginia 10th and
then flying them in the California 25th and environs. And being
able to share that experience with you and with the rest of the
Committee is very, very meaningful.
I think it is best summarized by the fact that, last week,
in Dallas, our company was announced as a partner with Uber in
their latest program called Uber Elevate, which is an attempt
to deploy by early in the next decade a series of electric,
vertical-takeoff and -landing, passenger-carrying, autonomous
vehicles. These are things that you could imagine using an app
on your cell phone, like the standard Uber app, and being able
to summon in the third dimension a vehicle that would carry a
couple of passengers in the urban environment on demand.
And our ability to participate in a program like that is
partly the result of dozens, literally, of SBIR programs over
the last 20 and 30 years, which were not ever specifically
aimed at such an application but which illustrate the fact that
commercialization is not a linear process, right? It is
something that happens out of a combination of planning and
performing the research, and then the applications occur in
different ways.
Our first award as a business was from NASA back in 1989,
and it was for an electric aircraft application, the particular
one of fuel cells for airplanes. That led to a series of DARPA-
funded initiatives that were aimed at developing quiet ducted
fans. And that led to a non-SBIR program called the XV-24 that
DARPA is running that we were able to defeat four major
established companies to win and is now being built today in
Manassas. And then that program has led directly into our
ability to commercialize that technology into programs like
what Uber is pursuing.
In turn, the fact that Uber chose the electric VTOLs for
these urban mobility activities will also, I predict, be
transferred back into the government sphere. Organizations like
the Marine Logistics Organization are very interested in
similar types of vehicles for moving cargo efficiently back and
forth over distances, say, between amphibious ships and the
shore.
Since I started the company in 1989, we have won over 200
SBIR programs, totaling about $59 million, which has been a
relatively small fraction, under 5 percent, of the revenues
that the company has been able to generate, about $1.2 billion
to date, however the SBIR funding has been critical seed
funding because it really does serve as sort of publicly funded
venture capital, as people on this committee have talked about
and acknowledged.
And I particularly wanted to echo the comment earlier from
the gentleman from New York about the important international
element of this, that everyplace I go overseas people are
amazed to hear about the SBIR program. They literally can't
believe that the U.S. Government will give you money to start a
company.
And the SBIR plays a really unique role, because you can't
run a company just on the SBIR program; it is a supplement, it
is a piece, it is a tool in a toolkit of what allows a culture
of innovation. And it is an area that we still lead the world
in.
We spend a lot of time as a society talking about
government programs that don't work or don't meet their
expectations, and it is really refreshing and I think we should
all celebrate the fact that in SBIR we have a program that
really does meet its original goals, that has, I think, stood
the test of time. It is an important part of maintaining this
country's international competitiveness, and deserves
everyone's continued support.
I look forward to being able to discuss any questions.
Thank you.
Chairman KNIGHT. Thank you very much.
And, Mr. Shroder, you are now recognized for 5 minutes.
STATEMENT OF RON SHRODER
Mr. SHRODER. Chairmans Knight and Comstock and Ranking
Members Murphy and Lipinski and the two Subcommittees, thank
you for the invitation to speak. It is quite an honor.
Before I begin, I believe it is critical to talk about how
a strong R&D culture is so important to our country and how the
SBIR and STTR programs are such an important piece of that
culture. If in doubt, go back to the Air Force 2014 impact
study and the recent Navy study to see the incredible metrics
that make this program probably the best small-business program
ever in the history of the country.
The entire community owes a great deal of debt and
gratitude to the original founders of this program. It was
almost a ``Shark Tank''-like concept that was created 35 years
ago that we can all be so proud of. Major corporations like
Qualcomm, Amgen, Symantec, iRobot are just the rockstars of
that culture that many of us today want to be a part of.
In addition to that, Congress has played an incredibly
important role in that. Your adjustments over the years, not
only the continued reauthorization but trying to cut down the
delays between Phase Is and Phase IIs, looking at the size
standards and how you can deal with that when it comes to
commercialization, strengthening the intellectual property
rights, have all been incredibly important for small businesses
to be successful in this program.
Having said that, I think as we look at improvements for
the program we have to go back to the core and the intent of
the program, and that is stimulation of technological
advancements, small-business innovation in the Federal R&D
sector, participation by the socially and economically
disadvantaged businesses, as well as commercialization of the
technologies into economic growth.
There is a great deal to be proud of in each one of those
areas. There are also some changes that can be made to improve
each one of them, as well. Today, I would like to focus on the
commercialization. That is where my passion is, and that is
where Frontier Technology that I represent today has had the
most success.
What I find is it is an incredibly great opportunity. We
were founded by an entrepreneur that believed the researchers
should be part of the ownership of the company. We convinced
those great entrepreneurs and R&D people to come in and be a
part of our company, be an owner. And then we found ourselves
located in locations like southwestern Ohio, Virginia, the
southern California area, northern Alabama, where we were
fortunate enough to be with real R&D superstars in the Federal
Government. When you combine those two, you have an
entrepreneurial opportunity that is enormous.
Having said that, what we found is that the Phase Is, Phase
IIs, the CPPs the Phase II-1/2s, et cetera, the RIFs, were all
like ``Shark Tank'' funding; they helped you, but they were not
the answer. They really were associated with short-term job
opportunities and short-term durations. Where you really needed
to be successful to give these employees and owners a long-term
job was in the Phase III commercialization. And that is where
we focus most of our time.
The problem is, when you go to implement that, you are
going to find out that it is much harder than what most people
think. I am sure it is harder than what your intent is. Because
what happens is the SBIR community recognizes that they know
about SBIRs. They come away with an insight from SBIRs that
generally come from their interaction in Phase Is and Phase
IIs. But do most realize that Phase Is and Phase IIs are almost
the exact opposite of Phase IIIs?
Phase Is and Phase IIs are R&D money. Phase IIIs are any
kind of money. Phase Is and Phase IIs are competitive. Phase
IIIs are sole-source. Phase Is and Phase IIs are limited dollar
amounts. Phase IIIs are unlimited.
When you take your opportunities for Phase III
commercialization to the people that think they understand
SBIRs and you talk about those variations in Phase IIIs, you
typically get a response that involves ``it is almost too good
to be true.''
And so, today, as we go forward and try to do the
commercialization, what we have found is the efforts that you
have done to educate the community are the most important
things you can do to help us as small businesses be successful.
The Navy manual for Phase III guidance has had a huge impact.
The Air Force manual for Phase III guidance has had a huge
impact. It has educated a community to say that it is real; it
is allowed; let these small businesses take these technologies
and grow.
And so, today, as you look at improving the programs, I
would say definitely continue the 3 percent. And make sure that
3 percent is structured in a manner that prioritizes what you
care the most about, which is going to be that
commercialization. Make sure there are ombudsmen. Make sure
there is education for the socially disadvantaged organizations
that need to get into the program. Make sure that the agencies
have Phase III offices that facilitate the knowledge of Phase
III contracting to those people that want to tie into the
technology.
With those kind of changes and your existing laws that
require them to report appropriately when implemented, as we
heard today, at a fullest extent, I think you will see an
incredible growth in the opportunities that come out of Phase
III commercialization and the intent of this program.
I look forward to questions.
Chairman KNIGHT. Thank you very much.
And, Ms. Alban, you are now recognized for 5 minutes.
STATEMENT OF ANGELA M. ALBAN
Ms. ALBAN. Good morning, Chairman Knight, Chairman
Comstock, Ranking Member Murphy, Ranking Member Lipinski, and
members of the Subcommittees. My name is Angela Alban Naranjo,
and I am founder and president/CEO of SIMETRI, a small, woman-
owned, minority-owned business based in Winter Park, Florida,
and currently participating in the SBIR program. Thank you for
allowing me to share my experiences with you this morning.
The program affords me and has afforded me the opportunity
to grow our team and capabilities, make us more competitive,
and achieve our mission statement, which is to improve medical
outcomes through innovative training technology.
I would like to give you some background on our business
and how I start the company so you can understand how this
program has and can continue to transform lives and
communities.
I was born in Colombia and emigrated to the United States
when I was 5 years old. I decided to become an engineer, and,
after 14 years as a simulation engineer in central Florida, I
decided to start a company, SIMETRI, in 2009.
This program, the SBIR program, has allowed me to hire more
staff and develop foundational processes, methodologies, and
technologies that have prepared us for future work. Today, we
employ 12 people, and we are achieving our company's mission.
The U.S. Army's research lab in Orlando, the Advanced
Training Simulation Division, helps us develop new technologies
to address training gaps in the ability to train new, emerging
medical procedures accurately and effectively. They created an
SBIR topic to which we responded, and we received both a Phase
I SBIR and Phase II award in 2015.
We developed a capability to accurately teach a lifesaving
procedure called the humeral head intraosseous insertion. Our
design focused on affordability, realism, and sustainability. I
am grateful most of all for the government counterparts at ARL
that has resulted in us now being awarded a second Phase II.
And they are allowing us to take this training device to market
and transition it to the warfighter.
Due to the highly competitive nature of the SBIR and STTR
topics, however, the probability of win is often not enough in
some cases to justify the resources required to prepare a
proposal. Small businesses have to maximize their offering,
often partnering with universities and industry, making the
smaller budgets even that much smaller.
The SBIR and STTR programs are also not sufficient enough
to commercialize technology, as many of my panelists have
mentioned already, into a long-term and sustainable product. I
have to actively build a network around me to facilitate growth
and transition of our technology.
Fortunately, I live in a community that is rich in a lot of
these different services and ecosystems that support
entrepreneurs. I have participated in many programs, to include
the University of Central Florida's incubator program, Rollins
College ATHENA PowerLink program, GrowFL economic gardening
program, and also the DOD's Velociter Program. We have also
received matching grants through the Florida High Tech Corridor
to enhance the small amounts of funding that we can share with
universities.
These organizations have helped grow 34 companies, in the
case of the incubator, to deliver actually 130 Phase I SBIR
awards and 60 Phase II SBIR awards. The ATHENA PowerLink
Program has helped over 40 female entrepreneurs in central
Florida to grow their businesses 30 percent both in revenue and
in staff. GrowFL has assisted more than 900 companies
throughout the State of Florida, resulting in 16,000 additional
jobs, direct jobs, throughout the State, with over $3.4 billion
in revenue. And the Florida High Tech Corridor has helped 360
companies across 1,400 research projects, generating more than
$900 million in quantifiable impact.
I am fortunate to live in a region that enables me to
commercialize and transition technology. I ask you to consider
continuing similar programs at the Federal level to provide
these opportunities across the Nation. I do not believe that
these programs are available and this type of an environment is
available in every community. I also invite you to study the
resources that are available in central Florida for
entrepreneurs as a model for other communities.
My colleagues at Aptima, another small business, have been
participants in the program for over 20 years. Because of this
program, they anticipate 15- to 20-percent growth annually for
the next 2 to 3 years, much of that happening in central
Florida.
This growth could be greater, however, but there is a
disconnect between the SBIR and STTR pipeline with the POM
process. As technology matures, Phase III funding decisions
often require being represented as a program in the POM prior
to that, which fails to recognize the natural phasing of this
technology and the way that we can transition it successfully.
There are no tangible incentives to transition technology,
because this often results in risk. We must change the way we
view failure in acquisition programs and instead embrace these
as opportunities to leverage all there is to learn and to move
forward into the next iteration.
It is clear that, also, continuing resolutions and the
resulting unstable funding affect force readiness. I would
submit that this threat is especially felt in small businesses
performing this type of research. And we cannot absorb the
breaks in program funding that often occur under these
circumstances.
In conclusion, I want to reiterate that, not only as a
participant but as a taxpayer, I believe in this program. We
are at a critical time in our Nation's history, and it is now
more imperative than ever to continue to be a world leader. A
shift has occurred that puts us at risk in our ability to drive
technological change and revolution. We have opportunities to
expand and improve health care, communications, computations,
cybersecurity, and many other crucial technologies required to
defend the freedoms that we hold dear.
This concludes my statement. Thank you for your attention,
and I look forward to any questions that you may have.
Chairman KNIGHT. Thank you very much.
Dr. Rubin, you are now recognized for 5 minutes.
STATEMENT OF CLINTON T. RUBIN
Dr. RUBIN. Thank you, Chairman Knight, Chairwoman Comstock,
Ranking Members Murphy and Lipinski, and Committee members for
the opportunity to talk about, rather than Phase I, II, and III
SBIR/STTR programs, Phase 0, proof-of-concept centers.
I am very fortunate to be the director of the Long Island
Bioscience Hub, which is one of three of the NIH programs that
is intended to sort of harness the great biomedical research
that is done at our universities and help facilitate and
transfer them out into the real world.
I am giving you this perspective as a hardcore basic
scientist. I actually study stem cells as means of treating
osteoporosis, obesity, and diabetes. And through my research
and my--every scientist's passion and goal to see their
research actually help health and society, create new
therapeutic diagnostics, medical devices. The challenge is in
this translational research, this bench-to-bedside, the
challenges that we need to recognize that these innovations,
these discoveries, this science needs to be commercialized in
order to ultimately impact our health.
It is from this perspective that I would like to try to
make four points this morning.
The first one is this translational research. At medical
schools around our country, we tend to think of translational
research as innovations that come to the bedside to help
health. Again, let me emphasize that, without young companies
or established biotech and pharma companies, this research
actually will never actually see the light of day. It needs to
be protected with intellectual property; it needs to be
shepherded through to the commercial sector.
The second point is that all of our universities, certainly
in your districts and certainly within New York, as represented
here by my colleagues at the table; there are many
entrepreneurial faculty out there, but they are a very, very
small percentage of our university beds. I will be generous and
say that it is 2 to 3 percent. That means that there is so much
research out there that remains untapped, this primordial soup
of really robust, cutting-edge innovation that basically never
sees the Phase I, II, and III of the SBIR/STTR program.
That is really where the robust, the really principal
opportunity of a Phase 0 program comes in. Where the
infrastructure is developed to help faculty and students
recognize the potential of their research and to translate it
through the commercial sector to the bedside.
It was raised a number of times this morning about students
and STEM fields and what our next-generation entrepreneurs will
be. And I would say that these Phase 0 concept centers are
really excellent environments for the students, working with
faculty and postdoctoral fellows, to be exposed to and
experience the thrill of seeing science become innovation.
So if we are worried about our next generation becoming
entrepreneurs, the universities are great places to have it
happen and to drive it into whoever will be applying SBIR or
STTR programs in the future.
Let me speak very briefly about the REACH program itself.
It is the Research Evaluation and Commercialization Hub. As I
said before, we are one of three. We have been in existence for
just 2 years. We have already used these funds to fund over 33
projects. We have submitted over 30 disclosures for new
intellectual property. We have actually submitted SBIR
programs, some of which have now been funded, from this
technology that would have never gone down the commercial path.
This Phase 0 program is really, effectively, harnessing the
potential of discovery to bring out to business.
And I will also point out that companies are being formed.
So, rather than thinking of this as a competition for SBIR
programs--again, my colleagues here that expressed the passion,
the impact so well--it is the future applicants for STTR/SBIR
programs that these Phase 0s support.
I will also point out that it does not dilute the impact of
our university environments. We have heard this morning about
the potential of the university being the economic engine for
our communities. It is really an attractant for great, new
companies to start. And I believe that these Phase 0 programs,
which--I think the vision of your committee instituted them. I
would encourage you to continue them, because they are really
changing the nature of how we think of our science and actually
implementing the abilities for these discoveries to become
therapeutic.
Thank you very much.
Chairman KNIGHT. Thank you. And on the Small Business
Committee, we always thank you for the opportunities and for
the employment that you provide.
I am going to go to the Chairwoman for Research and
Technology, Mrs. Comstock, for her questions.
Chairwoman COMSTOCK. Thank you, Mr. Chairman.
And I really appreciate hearing your testimony and your
passion about this in the culture of innovation that you all
are supporting.
So what I wanted to ask of each of you is what top
recommendation would each of you make for improving SBIR and
STTR programs to promote innovation and really get those
cutting-edge things like you all have been involved in? And
then what are some additional examples of what we can see in
terms of getting that culture of innovation really thriving?
Mr. CLANTON. Well, I believe from our standpoint, the two
pilot programs being extended past the current year are kind of
at the top of the list. And the reason is they both have
demonstrated usefulness to a degree, and we believe
continuation of those would be probably one of the easiest
steps that could be taken to promote innovation.
Chairwoman COMSTOCK. Dr. Langford?
Dr. LANGFORD. I would say continuity of support. I think
one of the most disruptive things in our businesses and in
innovation is where things get started and then a program gets
stopped and restarted, whether it is in defense, it goes to the
importance of having the defense budget and things like that.
Continuity in the program, and you have done an excellent job
of that, and I would encourage you to continue.
The other would just be educating people to the fact that
the program exists and to its potential. I think there are
still a lot of folks to be reached out there in the STEM
programs, the next generations coming up, because this is such
a fabulous opportunity for them to pursue their ideas, their
dreams, their ambitions. And also in the government itself,
because what we tend to find is that some people are very aware
of the program and how to use it effectively and others have
never heard of it or don't pay much attention to it. So
education about the program and the access to it.
Mr. SHRODER. I would say the reporting. I believe that the
Phase III success path could be dramatically increased if
Congress understood the Phase III results that are coming out.
And right now, you are kind of hamstrung with no ability to see
the reports that are there.
When you guys have asked for the Phase III aspects, we have
literally had Defense Department organizations call us and say:
Do you have customers that want your technology, because we
need to award a Phase III to align with the congressional
requirements?
So if you can get that 3 percent to put together the
reporting aspects, and I will call it the recognition of what
the Phase III is about, I think the jobs and economic growth
will come naturally.
Ms. ALBAN. For me, I think it is continuation in funding,
that is one of the most important things. And then also
partnership between R&D and acquisition, at least in terms of
the DOD, and educating both sides of that to be able to work
together and facilitate that transition.
Dr. RUBIN. I think any way that you can harness the
university research pool to bring out innovation, like the
Phase 0 programs, to continue and even expand and deepen the
funding of them would be very, very powerful ways to bring out
technologies that otherwise would never see the light of day.
We academics were a resistant, ornery group of people, and
I think that cultural shifts are hard for us. But I think it is
opportunities like this where we actually realize that our
science matters.
Chairwoman COMSTOCK. Great. Thank you so much. I appreciate
all the comments.
Chairman KNIGHT. Thank you very much.
And we are going to do a little bit of chair shuffling
here. I have to take a meeting in just a couple minutes. So I
am going to ask the ranking member to ask her questions and
have Mr. Estes come up and take over for just a few minutes.
Mrs. MURPHY. Thank you.
Ms. Alban, many small businesses have complained that the
current SBIR application process is very arduous and costly.
And in fact in your testimony you talked a bit about how in
some cases filling out the application costs more than the
amount businesses would receive in funding.
In other instances, the wait is just simply too long, that
research staff might leave to work on other projects. It is
hard to sustain that, especially if you are a small business.
What would you change in the SBIR program to help alleviate
some of this hardship and specifically for women- and minority-
owned businesses?
Ms. ALBAN. Thank you for the question.
I definitely think that the part of the process that takes
the longest is not so much the application process. It
typically is when you have been notified that you have been
selected for award, I don't know if it is the FAR or if it is
the queue in which the contracting officers are working to get
these contracts awarded. Sometimes it could take 6 to 12 months
to get a contract awarded. So that is a pretty long period of
time for you to wait, as you mentioned.
As far as it being costly, it is in the case of smaller
businesses such as ours where we have to fortify or backfill
the capabilities that we aren't as strong in, if you will, and
we have to subcontract or to partner with universities. At
times what is left for us is not enough for us to be able to
actually make it a profitable venture and sometimes have to
invest some of our own funding.
So I would like to see possibly a tailored version of the
FAR or the ability for these contract awards to be expedited,
because I think that would at least make a big difference or an
impact for us.
Mrs. MURPHY. Thank you.
And then just one other follow-up on your testimony. You
had talked a bit about the CR and sequestration and its impact.
How does not having a Federal budget affect your ability to
plan and run your business?
Ms. ALBAN. Thank you for that question.
For us, it is extremely difficult, because we have to
juggle the resources that we have to sometimes provide enough
employment to keep them on staff, as you mentioned. And at
times we have had to work and collaborate with other businesses
and other projects to try to keep them employed in time for
those contracts to be awarded.
We have a lot of phased efforts that are not necessarily
SBIRs or STTRs in the R&D field that sometimes have to wait for
the budget and for funding to come into the agencies in order
for us to continue not new starts, but continue current
efforts. So that is actually a big challenge for us. And
currently, this summer I think is going to be a challenge for
us. And, thankfully, this week we have gotten some good news.
So I am very happy about that.
Mrs. MURPHY. Great. Thank you.
And this question is for the entire panel. Firms often face
a disconnect when attempting to transfer their SBIR
technologies to acquisition programs. If agency procurement
officers were more directly involved, there could be a better
match between SBIR research and an agency's need.
Wouldn't it make sense to directly incorporate acquisition
personnel into the SBIR programs in terms of research
solicitation and technical assistance?
Mr. CLANTON. From our standpoint, I agree with that
strongly. I think that is one of the biggest gaps in
understanding the value of the SBIR program, is that of
acquisition officers, who are accustomed to the day in and day
out acquisitions of pencils and paper clips, now having
something special coming out of the SBIR program, and I think
their inclusion and their understanding earlier in the process
would be a big benefit.
Dr. LANGFORD. I would agree with that. I think the
contracting process is one of the most challenging parts of the
Federal Government in general. And if you wanted to focus on
one thing that would promote efficiency, it would be there.
The Air Force, it is like 300 days on sole source awards
between the time that they can make a selection and get a
contract done, and they are proud of that number because it has
been coming down. It is just staggering to people on the
private sector side.
So, yes, contracting efficiency both in SBIR, where we tend
to be sort of the low priority compared to some of the larger
awards, is huge, but it goes across the entire system.
Mr. SHRODER. You asked the question this morning to our
government counterpart, and I think it was critical. And the
key is, the acquisition people have learned the SBIR program
through ones and twos. And the rules that are there, as I said
earlier, just are not the same.
And so when you go, even if you--I hope you do bring them
into the process, but when you do, you really need to educate
them as to what the law says. Because when you start talking
about major dollars, sole source, Phase III, et cetera, it is
good that their reaction is, ``Wait a minute, we can't do sole
source, we don't have that authority,'' or whatever. Well, yes,
you do. And the sooner you bring them in, the less the delays
will be, because we spend a great amount of time educating the
community what is legally allowed.
Ms. ALBAN. And I will ditto that. It is definitely an issue
of culture. I think it would be extremely helpful to have
acquisition involved in the R&D process, especially since they
are directly investing in a sense. I think that there would be
a lot less resistance to doing so, and I think, certainly, that
there would be a lot more advancement even in the technology
and integration into the platforms.
Dr. RUBIN. Just so everyone knows, I don't know what an
acquisition officer is, but I will say that the funding agency
for us is actually NIH. You had the foresight to enable NIH to
oversee the NCAI and the REACH program. And not only have they
been very, very effective partners and mentors for this, they
have actually synthesized across all institutes to fund these
programs.
So in reality, it is a reflection of everyone's commitment
to seeing these technologies move forward. So if NIH is my
acquisition officer, I think they are great.
Mrs. MURPHY. Well, it sounds like we are in violent
agreement about needing to address this gap.
And I yield back the remainder of my time. Thank you.
Mr. ESTES. [Presiding.] Thank you.
Mr. Shroder, in your experience how many technologies need
an additional Phase II process and how many go straight to
commercialization are there?
Mr. SHRODER. For our Phase II's, what we have found is the
ones that do get a second Phase II, those are the ones that are
really ripe for the Phase III commercialization. We have had
six Phase III awards within the last couple of years and most
of those, I think, related to ones that had received multiple
Phase II awards.
So that extra investment from a venture capital perspective
has been critical, because it also gives you the time to
communicate the value of the technology to the rest of the
world. We are not going to rely, necessarily, on the POM to
fund the Phase III commercialization. We think it is our job to
go get those customers and line them up.
But once we have shown the technology is worthwhile, and it
has matured enough that they can trust it, we think they will
invest the dollars that are already there to use it. Now we
just need the ability for them to use it through the
contracting officers.
Mr. ESTES. I will maybe open this to other members of the
panel. Do you have similar or have comments around that
question?
Dr. LANGFORD. My comment would be, just so you know how it
works in the real world on Phase III's, they are often in our
experience used just as contract vehicles and they often have
little or no relationship to the Phase II because it is so hard
to get a new contract established in the general contracting
process that government authorities who want to get something
done, one of their questions is, ``Hey, do you have a Phase II
open that we could put this onto as a Phase III?'' And in our
experience, that has been the primary way Phase III's get used.
Mr. ESTES. Which, actually, goes back to the ranking
member's question previously about the contracting.
Dr. LANGFORD. It goes back to Representative Murphy's point
exactly. I wouldn't say that is an abuse of the system, it is
just how the system gets used, because the mainline contracting
process is so cumbersome that people on both sides of the table
are looking for ways that are fully within the law to get
things done.
Mr. ESTES. Which is an interesting point. And kind of my
background prior to running for public office was try to look
for ways to make things more efficient and effective. So that
is one of the reasons why I ran for office, was to look to do
some of these things.
Dr. LANGFORD. Thank you. Thank you on behalf of all of us.
Mr. ESTES. Thank you.
I would like to call on Ranking Member Lipinski now.
Mr. LIPINSKI. Thank you.
Dr. Rubin, you talked very eloquently about how helpful the
NIH REACH program has been. Is there anything that you would
like to see change, any improvements that you would suggest to
that program?
Dr. RUBIN. Thanks for the question and the support for
REACH. I think that, if I remember the application process
through an NIH RFA, there were a lot of universities entrusted
in this mechanism, the idea of taking their science and seeing
it come out into the real world.
So the easy answer to your question is to expand the
program, because I think that all the universities across the
country, if we rely only on those faculty who are protecting
their discoveries with intellectual property and relying on
tech transfer officers to move it out into the real world, we
are just missing a huge opportunity from the investment the
Federal and State governments make in our research enterprise.
So I would encourage your Committee to consider ways of
expanding the program both in terms of breadth across the
country, but also in terms of time. And the NIH REACH and NCAI
programs are biomedical in their very phenotype, their
definition. And the problem with biomedical challenges is it
takes a long time to go from proof of concept translated to
applied science into the commercial sector.
So having a little more, a longer leash, I think, would be
very important to us. I think we are fully accountable. We are
very milestone driven. NIH has been a good shepherd, but also
good keeping us on track.
So I think that if I were to do anything, if I were sitting
in your shoes, I would see if the power of the university
environment could be expanded dramatically by expanding the
program.
Mr. LIPINSKI. And do you think that this could be expanded
into other areas across SBIR, not just through NIH? And that is
your area, but can you see this easily translated all across?
Dr. RUBIN. I think it would just be a superb way of taking
all the great engineering science outside of the biomedical
field, material science, thin film, and software. These are,
again, it is research that we as taxpayers are investing in. I
am very proud of the innovation of our country and of our
universities.
But I am frustrated a little bit by the absence of a
cultural shift within our university communities to recognize
the potential that is there. And I think that not so much a
stick, but the carrot of expanding the program to other
disciplines, I think would have a profound impact on the
universities as economic engines in our communities.
So, yeah, I would applaud that as a great idea.
Mr. LIPINSKI. And do you have any experience or also
anything to say about the role of I-Corps, something else that
I had mentioned in the opening, about potentially having
accelerators or have that be part of Phase II in SBIR? Do you
think that would be helpful?
Dr. RUBIN. Well, I would just suggest to members of the
Committee that I am an academic, so I have something to say
about anything. So for sure.
Mr. LIPINSKI. I understand that. I am an academic myself.
Dr. RUBIN. I should also point out that in addition to the
REACH program through NIH, we were very fortunate to secure an
NSF I-Corps program as well as a Department of Commerce i6
Challenge, which is basically the synthesis of many distinct
Federal agencies to move forward entrepreneurialism. And I
think that as members and statements from this desk have been
made about who are the future entrepreneurs, it is the I-Corps
program not only for the faculty entrepreneurs, but the
graduate students and undergraduates that are interested in
seeing their science move out to the commercial sector.
So I think the fusion, the synthesis of these distinct
programs really has great potential for the future. I think
they are great, and we were very fortunate to secure these
awards.
Mr. LIPINSKI. Thank you.
And I am almost out of time, so I yield back.
Mr. ESTES. Thank you.
And now Representative Lawson, you have 5 minutes.
Mr. LAWSON. Thank you very much, Mr. Chairman.
And you all, welcome to the Committee. And during the ones
that testified before you, I asked a question that I will
probably ask the same question, because I have a great deal of
interest in it.
I represent probably three or four universities within the
district. One of the major universities is Florida State
University, which has a hub in Innovation Park and the home of
the magnetic lab, which is very significant. And I am happy to
see that the State of Florida reinvested in the lab, because
there were other States around that were very interested in
providing the funding that it needed to keep the lab going.
So the question centers around pipeline to Historically
Black Colleges to get involved in STEM. There are two, one is
in my district, which is Edward Waters College and the other is
Florida A&M University, which is in the State university
system. And we have a joint program in engineering between
Florida A&M University and Florida State University which has
gone on for a number of years, and they are producing more
students that are candidates to be involved in the STEM field.
My question: Can we create that pipeline for graduates in
the STEM field that would help these students create their own
small businesses that can eventually take part in programs such
as SBIR and STTR? And that is for the whole panel.
Ms. ALBAN. Congressman Lawson, I can tell you that at the
University of Central Florida in Orlando there is such a
program for students. It is called LaunchPad, I believe, the
Blackstone LaunchPad. And I recently actually went and spoke to
a group of students to talk to them about all the opportunities
in what we call our ecosystem for entrepreneurs. And the
University of Central Florida is doing a very good job of not
just creating entrepreneurs, but also entrepreneurs within the
STEM field.
I could find that information out for you and certainly get
it to you, but I know that it has been a very successful
program. And a lot of those students as they graduate then
transition into the incubator program that the university also
has, which then also educates them on how to write the proper
proposal for the STTR and SBIR program and how to pursue even
the Phase 0's, the Phase I's, and the Phase II's. So I would be
happy to share that information with you.
Mr. LAWSON. Okay. That is great.
Anyone else care to elaborate on that?
Mr. CLANTON. We do a lot of collaboration with Texas A&M
University, and through both their engineering and business
school they have a number of outlets for new ventures in
entrepreneurship, very similar to what Ms. Alban was saying.
And we have also been encouraging the discussion of some type
of mentor protege program specifically for SBIR companies to
help young, first-time business owners with SBIR applications
in the process.
Mr. LAWSON. Okay. And I just have one other question,
because I heard you all talk about the application process. So
if you had to recommend one thing to Congress about how long
does it take to go through the contracting process, what would
that be?
Mr. SHRODER. Metrics. I think if you had metrics that made
you understand the speed or lack thereof in the reporting that
comes through, you might guide it slightly differently. Because
the reality is, I think we at one point mentioned that some
awards have taken nearly a year. In those kinds of cases, I
don't think that is at all what your intent is.
And when you are a small business and you have got some
pretty high-tech people that you are blessed to have as
employees sitting on your bench, if you don't have other work
for them, by the time the award occurs, they are not even your
employee anymore.
So if you could get your metrics to report each agency's
performance along those lines, I think it would change the
culture.
Mr. LAWSON. Yes. And, Mr. Chair, just before I yield back,
I think that is very, very, very significant, and that we
should with the staff try to find out how can we improve that
process.
And I yield back.
Mr. ESTES. Thank you.
Well, I will make a closing statement now. Again, I would
like to thank all our witnesses for being with us today. I
think both panels provided us with some excellent thoughts on
these successful programs.
Whether we are doing new software programs or tracking
contract payments, a new medical device to help with cancer
treatments, or a new piece of technology that might save lives
on the battlefield, the SBIR and STTR programs have
consistently delivered results across all Federal agencies.
They are worthy programs that are worthwhile and doing what
they are supposed to do.
But we can always do better. We are going to take some of
your suggestions and thoughts that you provided today and work
to incorporate them into legislation that our two Committees
are working on.
I do want to thank you for your testimony.
I will ask unanimous consent that the hearing record be
open for 2 weeks for additional written comments and written
questions from members. And without objection, so ordered.
This hearing is now adjourned.
[Whereupon, at 12:45 p.m., the Subcommittees were
adjourned.]
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