[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
AMERICA'S SEED FUND:
A REVIEW OF SBIR AND STTR
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HEARING
BEFORE THE
SUBCOMMITTEE ON RESEARCH AND TECHNOLOGY
OF THE
COMMITTEE ON SCIENCE, SPACE,
AND TECHNOLOGY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 5, 2020
__________
Serial No. 116-65
__________
Printed for the use of the Committee on Science, Space, and Technology
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://science.house.gov
U.S. GOVERNMENT PUBLISHING OFFICE
39-569 PDF WASHINGTON : 2021
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COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HON. EDDIE BERNICE JOHNSON, Texas, Chairwoman
ZOE LOFGREN, California FRANK D. LUCAS, Oklahoma,
DANIEL LIPINSKI, Illinois Ranking Member
SUZANNE BONAMICI, Oregon MO BROOKS, Alabama
AMI BERA, California, BILL POSEY, Florida
Vice Chair RANDY WEBER, Texas
LIZZIE FLETCHER, Texas BRIAN BABIN, Texas
HALEY STEVENS, Michigan ANDY BIGGS, Arizona
KENDRA HORN, Oklahoma ROGER MARSHALL, Kansas
MIKIE SHERRILL, New Jersey RALPH NORMAN, South Carolina
BRAD SHERMAN, California MICHAEL CLOUD, Texas
STEVE COHEN, Tennessee TROY BALDERSON, Ohio
JERRY McNERNEY, California PETE OLSON, Texas
ED PERLMUTTER, Colorado ANTHONY GONZALEZ, Ohio
PAUL TONKO, New York MICHAEL WALTZ, Florida
BILL FOSTER, Illinois JIM BAIRD, Indiana
DON BEYER, Virginia FRANCIS ROONEY, Florida
CHARLIE CRIST, Florida GREGORY F. MURPHY, North Carolina
SEAN CASTEN, Illinois VACANCY
BEN McADAMS, Utah
JENNIFER WEXTON, Virginia
CONOR LAMB, Pennsylvania
VACANCY
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Subcommittee on Research and Technology
HON. HALEY STEVENS, Michigan, Chairwoman
DANIEL LIPINSKI, Illinois JIM BAIRD, Indiana, Ranking Member
MIKIE SHERRILL, New Jersey ROGER MARSHALL, Kansas
BRAD SHERMAN, California TROY BALDERSON, Ohio
PAUL TONKO, New York ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah VACANCY
STEVE COHEN, Tennessee
BILL FOSTER, Illinois
C O N T E N T S
February 5, 2020
Page
Hearing Charter.................................................. 2
Opening Statements
Statement by Representative Haley Stevens, Chairwoman,
Subcommittee on Research and Technology, Committee on Science,
Space, and Technology, U.S. House of Representatives........... 8
Written Statement............................................ 9
Statement by Representative Jim Baird, Ranking Member,
Subcommittee on Research and Technology, Committee on Science,
Space, and Technology, U.S. House of Representatives........... 10
Written Statement............................................ 11
Written statement by Representative Eddie Bernice Johnson,
Chairwoman, Committee on Science, Space, and Technology, U.S.
House of Representatives....................................... 12
Witnesses:
Dr. Dawn Tilbury, Assistant Director, Directorate for
Engineering, National Science Foundation
Oral Statement............................................... 14
Written Statement............................................ 16
Dr. Maryann Feldman, S.K. Heninger Distinguished Professor of
Public Policy, Department of Public Policy; Adjunct Professor
of Finance, Kenan-Flagler Business School; Faculty Director,
CREATE, Kenan Institute of Private Enterprise; The University
of North Carolina at Chapel Hill
Oral Statement............................................... 25
Written Statement............................................ 27
Mr. Nicholas Cucinelli, Chief Executive Officer, Endectra
Oral Statement............................................... 32
Written Statement............................................ 34
Dr. Johnny Park, Chief Executive Officer, Wabash Heartland
Innovation Network
Oral Statement............................................... 45
Written Statement............................................ 47
Discussion....................................................... 54
Appendix I: Answers to Post-Hearing Questions
Dr. Dawn Tilbury, Assistant Director, Directorate for
Engineering, National Science Foundation....................... 68
Dr. Maryann Feldman, S.K. Heninger Distinguished Professor of
Public Policy, Department of Public Policy; Adjunct Professor
of Finance, Kenan-Flagler Business School; Faculty Director,
CREATE, Kenan Institute of Private Enterprise; The University
of North Carolina at Chapel Hill............................... 71
Appendix II: Additional Material for the Record
Letters submitted by Representative Haley Stevens, Chairwoman,
Subcommittee on Research and Technology, Committee on Science,
Space, and Technology, U.S. House of Representatives........... 76
AMERICA'S SEED FUND:
A REVIEW OF SBIR AND STTR
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WEDNESDAY, FEBRUARY 5, 2020
House of Representatives,
Subcommittee on Research and Technology,
Committee on Science, Space, and Technology,
Washington, D.C.
The Subcommittee met, pursuant to notice, at 2 p.m., in
room 2318 of the Rayburn House Office Building, Hon. Haley
Stevens [Chairwoman of the Subcommittee] presiding.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Stevens. This hearing will come to order.
Without objection, the Chair is authorized to declare recess at
any time. Good afternoon, and welcome to this hearing of the
Subcommittee on Research and Technology to review opportunities
and challenges for the Small Business Innovation Research
(SBIR) and Small Business Technology Transfer (STTR) programs.
I'd like to extend a warm welcome to our distinguished panel of
witnesses. We look forward to hearing your testimony, and to
having this discussion this afternoon. Today we're going to
explore the role of these important programs in catalyzing the
innovation and commercialization accomplishments from our
Federal research investments to generate new economic growth,
and further American leadership in innovation.
The SBIR and STTR programs have helped entrepreneurs in my
home State of Michigan to pursue their big ideas, and
contribute to our thriving innovation economy. Since the
creation of these programs, small businesses, as an example, in
Michigan have been able to leverage $1.2 billion in funds to
develop an amazing array of new technologies, while creating
jobs and driving economic growth in our region. These
investments transform communities and competitively grow small
businesses.
For instance, Variation Reduction Solutions, Incorporated,
VRSI, is a small business located in my district in Plymouth,
Michigan, and they're focused on manufacturing production
technology. With our great roots in Southeastern Michigan in
the auto industry, this, you know, we needed to kind of find a
way to continue to grow our economy as we were coming out of
the Great Recession that began in Michigan in 2007. So with the
help of an SBIR grant, VRSI expanded into the aerospace
industry. See, this is the plight of diversification, right? So
we love our auto industry, but if there's a downturn, we want
to be able to sell into other industries as well. And so they
became involved with the F-35 Program, and generated
relationships with the Department of Defense and large industry
players, such as Lockheed-Martin and Northrop Grumman. The SBIR
program was an essential piece of this successful transition to
allow VRSI to not only weather through the transition of the
Great Recession, but also to grow into a stronger and more
thriving business.
Today SBIR programs continue to allow small businesses in
my district with the opportunity to scale into new industries
and new markets, while building critical relationships with
government and industry partners. It's because of successes
like these that I am so proud to co-sponsor a bipartisan bill,
and we did this earlier this Congress. I did this with my
friend Ranking Member Baird, and two of our colleagues on the
other Committee, on the House Small Business Committee, to
further strengthen SBIR and STTR programs. H.R. 3774, the Small
Business Innovation Research and Small Business Technology
Transfer Improvement Act of 2019 encourages agencies to give
high priority to funding small manufacturers and cybersecurity
forums, right? These are places where we need and want to
innovate, and it's absolutely critical for our economic and
national security for the U.S. to maintain a domestic
manufacturing base, and to develop the best cybersecurity tools
for all businesses.
For these entrepreneurs who are just getting started, early
stage funding, right, helps them to get on the path for
success. So this legislation, H.R. 3774, would require the
Phase 0 proof of Concept Pilot Program currently carried out by
NIH (National Institutes of Health) to be expanded to NSF
(National Science Foundation), DOE (Department of Energy), and
NASA (National Aeronautics and Space Administration). This
pilot program has been instrumental in providing funds to
innovators to identify research with commercial potential,
engage in entrepreneurial training, and make technical
validations. What could be greater? Phase Zero awards also
allow researchers to take these important steps before company
formation and before spending weeks to months to complete an
SBIR application. Data from the NIH pilot program have clearly
demonstrated the potential for this program to improve the
overall outcomes of the SBIR program. Phase Zero efforts have
also demonstrated success in broadening the participation of
women and minorities in entrepreneurship, which is an important
goal of the SBIR program that the agencies have long grappled
with.
SBIR has also been an important program in our overall
Federal R&D (research and development) portfolio. It helps the
agencies achieve their missions, and it supports innovative
entrepreneurs who are creating jobs and generating economic
growth in communities across the Nation. The improvements to
the SBIR program proposed in H.R. 3774 will ensure that we can
continue to build upon the program's successes and lessons
learned. I cannot think of a more essential and exciting topic
for us to explore and learn more about today. I want to thank
our witnesses again for being here. We are really looking
forward to your feedback on the legislation, and any other
additional ideas that Congress should consider for improving
the SBIR program.
[The prepared statement of Chairwoman Stevens follows:]
Good afternoon and welcome to this hearing of the
Subcommittee on Research & Technology to review opportunities
and challenges for the Small Business Innovation Research and
Small Business Technology Transfer program. I'd also like to
extend a warm welcome to our distinguished panel of witnesses.
We look forward to your testimony and having this discussion
this afternoon.
Today, we will explore the role of these important programs
in catalyzing the innovation and commercialization
accomplishments from our federal research investments to
generate new economic growth and further American leadership in
innovation.
The SBIR and STTR programs have helped entrepreneurs in
Michigan pursue their big ideas and contribute to our thriving
innovation economy. Since the creation of these programs, small
businesses in Michigan have leveraged $1.2 billion in funds to
develop an amazing array of new technologies while creating
jobs and driving economic growth in our region.
These investments transform communities and grow small
businesses. For instance, Variation Reduction Solutions,
Incorporated, VRSI, is a small business in my district in
Plymouth, Michigan focused on manufacturing production
technology. With its roots in the auto industry, it needed to
find a way to succeed as the economy was crashing in 2007.
With the help of an SBIR grant, VRSI expanded into the
aerospace industry, becoming involved with the F-35 program and
generating relationships with the Department of Defense and
large industry players such as Lockheed Martin and Northrup
Grumman. The SBIR program was an essential piece of this
successful transition to allow VRSI to not only weather the
Great Recession but to grow into a stronger and thriving
business.
Today the SBIR Program continues to allow small businesses
in districts like mine the opportunity to scale into new
industries and new markets while building critical
relationships with government and industry partners.
It is because of successes like these that I was proud to
cosponsor a bipartisan bill earlier this Congress with Ranking
Member Baird and two of our colleagues on the House Small
Business Committee to further strengthen the SBIR and STTR
programs. H.R. 3774, The Small Business Innovation Research and
Small Business Technology Transfer Improvements Act of 2019,
encourages agencies to give high priority to funding small
manufacturers and cybersecurity firms. It is critical for our
economic and national security for the U.S. to maintain a
domestic manufacturing base and to develop the best
cybersecurity tools for all businesses.
For those entrepreneurs who are just getting started, early
stage funding helps set them on the path to success. H.R. 3774
would require the Phase 0 Proof of Concept pilot program
currently carried out by NIH to be expanded to NSF, DOE, and
NASA. This pilot program has been instrumental in providing
funds to innovators to identify research with commercial
potential, engage in entrepreneurial training, and make
technical validations. Phase 0 awards allow researchers to take
these important steps before company formation and before
spending weeks to months to complete an SBIR application. Data
from the NIH pilot program have clearly demonstrated the
potential for this program to improve the overall outcomes of
the SBIR program. Phase 0 efforts have also demonstrated
success in broadening the participation of women and minorities
in entrepreneurship. That is an important goal of the SBIR
program that the agencies have long struggled with.
SBIR has long been an important program in our Federal R&D
portfolio. It helps the agencies achieve their missions and it
supports innovative entrepreneurs who are creating jobs and
generating economic growth in communities across the nation.
The improvements to the SBIR program proposed in H.R. 3774 will
ensure that we can continue to build upon the program's
successes and lessons learned.
I cannot think of a more essential and exciting topic for
us to explore and learn more about today. I want to thank the
witnesses for being here today. I look forward to your feedback
on our legislation and any additional ideas Congress should
consider for improving the SBIR Program.
Chairwoman Stevens. Before I recognize Dr. Baird for his
opening remarks, I would like to present for the record
statements from the National Institutes of Health and Clean
Energy Business Network regarding this hearing, so we have
statements from both of these organizations for the official
record today.
And now, without further ado, our Chair is going to
recognize Dr. Baird for an opening statement.
Mr. Baird. Thank you, Chairwoman Stevens. Anyway, let's not
get confused here. I really appreciate you holding this
hearing, and you know I really appreciated the opportunity to
work with you to introduce that H.R. 3774. And, you know, these
are, you know, descriptive terms, I guess, but when you talk
about small business innovation research, if you really think
through that, that's extremely important, and then you add to
it the small business technology transfer improvement, I mean,
that's so important to our economy, to our country, and to our
citizenship, so we really appreciate the opportunity to do that
with you, and I appreciate all the witnesses being here.
I'm really proud of America for our leadership in science
and technology over the years and through the centuries, and as
I mentioned, it is critical to our economy, and it's critical
our national security. And so basic research, supported with
taxpayer dollars through the National Science Foundation,
through NASA, NIH, DOD (Department of Defense), and other
Federal agencies have led to key scientific discoveries that
have created today's world, the Internet, wireless
communications, life-saving medicines, lasers, and so on. So
when you think about the products and innovations that have
evolved from this kind of research, it's phenomenal. So basic
research produces the scientific fuel for innovation, risk-
taking small businesses are the engines for converting that
knowledge, and into new products and services. Small businesses
are the catalysts for economic growth for producing good paying
jobs in our communities. So I think a lot of us recognize how
important small businesses are to our communities, and to our
States, and to the country.
So SBIR and STTR programs help accelerate the
commercialization of taxpayer funded research into new products
and services. They also help the Department of Defense and
other Federal agencies meet their research and development
needs. The SBIR and STTR programs are funded from set-asides of
the extramural research budget at Federal agencies to the tune
of 3.2 percent for SBIR grants, and just less than half a
percent for the STTR. These set-asides sound small, but they
amount to about $2.7 billion for SBIR and $368 million for STTR
on an annual basis, so this is a huge taxpayer investment, so
it's important that we ensure that these programs are working.
And I think that's why we have these kinds of hearings, to
share with us, as Congress Members, how the programs are
working.
My legislation takes steps to improve the accountability
portion of that. First, it reinforces the requirement that the
Small Business Association give a comprehensive annual report
to SBIR and STTR programs to Congress, and hold the Department
of Defense accountable to stimulate technological innovation.
The bill also sets priorities for SBIR and STTR--boy, programs
to stimulate manufacturing and cybersecurity, and the products
and services that we utilize in the United States.
The bill extends the flexibility given to agencies for
innovative funding mechanisms for those two programs. Congress
acted to extend those two programs through Fiscal Year 2022,
but our work must continue to ensure the success of these
programs. They're vital to helping the Hoosier small
businesses, and the other segments of our Nation. I'm proud to
have one of those Hoosier success stories on the panel here
today. Dr. Johnny Park took basic research he developed in his
lab at Purdue University. Did you hear that? Purdue University,
yes.
Chairwoman Stevens. OK----
Mr. Baird. Anyway----
Chairwoman Stevens [continuing]. We heard you.
Mr. Baird [continuing]. And started a company with the
assistance of an SBIR award to develop his research, then he
created products for farmers, and a thriving business that has
been acquired since then. I look forward to hearing his
testimony today as a great example of the innovation system in
America. We must take every opportunity to strengthen
investment in R&D so that we can continue breaking boundaries
and moving our economy forward. I'm proud to work with our
colleagues to encourage innovation and give our businesses the
resources they need to thrive. I look forward to hearing ideas
from our panel and witnesses on how we can continue to
strengthen the two programs. And I yield back. Thank you.
[The prepared statement of Mr. Baird follows:]
Chairwoman Stevens, I appreciate you holding today's
hearing to review the SBIR and STTR programs.
I was proud to introduce H.R. 3774, the Small Business
Innovation Research and Small Business Technology Transfer
Improvements Act.
I want to thank the Chairwoman for joining me in sponsoring
the bill, and for advancing that effort with today's
legislative hearing.
America's leadership in science and technology is critical
to our economic and national security. Basic research supported
with taxpayer dollars through the National Science Foundation,
NASA, NIH, DOD, and other federal agencies has led to the key
scientific discoveries that have created today's world: the
internet, wireless communications, life-saving medicines,
lasers, and more.
If basic research produces the scientific fuel for
innovation, risk-taking small businesses are the engines for
converting knowledge into new products and services. Small
businesses are the catalysts for economic growth, for producing
good-paying jobs in our communities.
The SBIR and STTR programs help accelerate the
commercialization of taxpayer-funded research into new products
and services. They also help the Department of Defense and
other federal agencies meet their research and development
needs.
The SBIR and STTR programs are funded from set-asides of
the extramural research budgets at federal agencies--3.2% for
SBIR grants and just less than half a percent for STTR. These
set-asides sound small, but they amount to over $2.7 billion
for SBIR and $368 million for STTR annually. This is a huge
taxpayer investment, so it is important for Congress to ensure
the programs are working.
My legislation takes steps to improve accountability.
First, it reinforces the requirement that the Small
Business Administration (SBA) give a comprehensive annual
report of the SBIR and STTR programs to Congress and holds the
Department of Defense (DoD) accountable to stimulate
technological innovation.
The bill also sets priorities for the SBIR and STTR
programs to stimulate manufacturing and cybersecurity products
and services in the United States. The bill also extends
flexibility given to agencies for innovative funding mechanisms
under the SBIR and STTR programs.
Congress acted to extend the SBIR and STTR programs through
Fiscal Year 2022, but our work must continue to ensure the
success of these programs. The SBIR and STTR programs are vital
to helping our Hoosier small businesses and our nation.
I am proud to have one of those Hoosier success stories on
our panel today. Dr. Johnny Park took basic research he
developed in his lab at Purdue University, and started a
company with the assistance of SBIR awards to develop his
research. He created products for farmers and a thriving
business that was then acquired. I look forward to hearing his
testimony today, as a great example of the innovation system in
America.
We must take every opportunity to strengthen investment in
R&D so we can continue breaking boundaries and moving our
economy forward. I'm proud to work with my colleagues to
encourage innovation and give our businesses the resources they
need to thrive.
I look forward to hearing ideas from our panel of witnesses
of how we can continue to strengthen the SBIR and STTR
programs.
I yield back.
Chairwoman Stevens. If there are Members who wish to submit
additional opening statements, your statements will be added to
the record at this point.
[The prepared statement of Chairwoman Johnson follows:]
Good afternoon and thank you to the Chair and Ranking
Member for holding this hearing and for introducing a good,
bipartisan bill making improvements to the SBIR and STTR
programs. I would also like to welcome our witnesses to today's
hearing and thank them for sharing their expertise with us on
these important programs.
The SBIR program is known as ``America's Seed Fund.'' A
strength of the Federal scientific enterprise is its ability to
harness research and ideas from a wide range of innovators
including small businesses. Just a modest amount of early stage
support for these ideas can propel them forward and open the
door to significant private sector investment and commercial
success.
To build on these successes for the future, it is important
to periodically evaluate the SBIR program and ensure policies
are in place to help the agencies meet the goals of the
program.
There is no one size fits all assessment of SBIR because
each agency implements a unique program. And Congress has
recognized the need to provide agencies the flexibility to do
so. Each agency has its own mission and research needs.
However, the overarching goals are constant across the
agencies, and Congress requires the National Academies of
Science, Engineering, and Medicine to review these programs
every four years with those goals in mind. The Academies has
recently initiated a new round of reviews so we don't have new
recommendations yet. However, in their last round in 2015-2016
they found that overall, agencies were doing a good job in
meeting the statutory goals, except when it came to achieving
increased women and minority participation in SBIR and STTR.
Whether this is a pipeline issue or an accessibility issue,
the status quo is not good enough. Congress authorized agencies
to use 3 percent of their SBIR funds for administrative
activities, program evaluation, and outreach. I am interested
in any feedback the witnesses might offer on the use of these
funds for increasing the participation of underrepresented
groups in the program. I am also eager to learn more from NSF
about the promise of the Innovation Corps and other preSBIR
activities in engaging more women and minorities in
entrepreneurship. We should continue to experiment with these
and other potential solutions to addressing the lack of
diversity in the SBIR program and our innovation pipeline.
Finally, this Committee has long advocated for early-stage
funding. It takes business acumen, a solid technology
foundation, and adequate resources to get an idea into the
market. NIH recently reported a number of successes funded
through a Congressionally mandated pilot program to fund
activities to improve the commercialization potential of pre-
competitive technologies. Considering these successes, I would
like to see other agencies carry out a similar program.
I look forward to an informative hearing, and I appreciate
the witnesses being with us to share their insights and
legislative recommendations.
Thank you, and I yield the balance of my time.
Chairwoman Stevens. And at this time, I'd also like to
introduce our witnesses in full.
Our first witness is Dr. Dawn Tilbury. Dr. Tilbury is the
Assistant Director of the Directorate of Engineering at the
National Science Foundation. In this role she leads the
directorate in its mission to support engineering research and
education critical to the Nation's future. The engineering
directorate also manages the National Science Foundation's SBIR
and STTR programs. Dr. Tilbury is on temporary leave, wait for
it, from the University of Michigan, where she has been a
professor since 1995 in both mechanical and electrical
engineering. She is also the inaugural chair of the Robotics
Steering Committee, and served as an associate dean for
research in the College of Engineering at the University of
Michigan. And, as we just launched last week the Women in STEM
(science, technology, engineering and mathematics) Caucus for
the House of Representatives, we look forward to engaging you
in that caucus as well in that Committee.
And then our next witness is Dr. Maryann Feldman. Dr.
Feldman is the Distinguished Professor in the Department of
Public Policy and Adjunct Professor of Finance in the Kenan-
Flagler Business School at the University of North Carolina at
Chapel Hill. Her research focuses on the geography of
innovation, the commercialization of academic research, and the
factors that promote technological change and economic growth.
Dr. Feldman is also the co-chair of several assessments of the
SBIR and STTR programs that are underway at the National
Academies of Sciences, Engineering, and Medicine, and we're
counting you in our Women in STEM Caucus too. We're promoting
it, since we just launched it.
And then next, and we're so delighted to have Mr. Nicholas
Cucinelli. Mr. Cucinelli is the Chief Executive Officer of
Endectra LLC, an SBIR funded spinout from the University of
Michigan launched in 2015 that has a portfolio of photonic and
nano-sensor technologies for defense, medical, and industrial
applications. He is also an entrepreneurial leadership
instructor at the University of Michigan Center for
Entrepreneurship. And from 2013 to 2018 he served as a mentor
in residence for the Tech Transfer Talent Network Program,
supporting university startup teams Statewide. Mr. Cucinelli
served 16 years with the U.S. Coast Guard, where he focused on
environmental protection, and was named Coast Guard Hero in
2000, and thank you so much for doing that important work.
Our fourth witness, who we heard a little bit about, is Dr.
Johnny Park. Dr. Park is the Chief Executive Officer of Wabash
Heartland Innovation Network, a consortium of 10 counties in
North Central Indiana devoted to developing the region into a
global epicenter of digital agriculture and next generation
manufacturing by using the Internet of Things. Prior to his
position at this network, Dr. Park founded, scaled, and led a
successful exit of an ag tech company, Spensa Technologies. He
was previously a faculty member in the School of Electrical and
Computer Engineering at Purdue University, where his research
included projects on robotics, computer vision, machine
learning, and distributed sensor networks. We will make note
that not all SBIR funding goes through Michigan and Indiana,
but we are very pleased to have these great witnesses here
today. And there's one thing we know on this Committee, is that
the Midwest is best.
So, as our witnesses should know, you're each going to have
5 minutes for your spoken testimony, and make sure to turn on
your microphone when you're speaking. Your written testimony
will be included in the record for the hearing, and then, after
each of you have completed your spoken testimony, we'll begin
with questions, and each Member will have 5 minutes to question
the panel. And, with that, we're going to start with Dr.
Tilbury.
TESTIMONY OF DR. DAWN TILBURY,
ASSISTANT DIRECTOR, DIRECTORATE FOR ENGINEERING, NATIONAL
SCIENCE FOUNDATION
Dr. Tilbury. Great. Well, thank you very much, Chairwoman
Stevens, Ranking Member Baird, and Members of the Subcommittee.
Thank you for the opportunity to testify on the SBIR and STTR
programs at the National Science Foundation. It's great to see
a little Big Ten rivalry up there. So this year, as NSF
celebrates its 70th anniversary, we reflect on the many
breakthrough discoveries and innovations that have been enabled
by NSF investments that sustain, accelerate, and transform
America's globally preeminent research ecosystem. Some of the
most well-known innovative companies of today, such as
Qualcomm, started with NSF support, and specifically with
support from SBIR and STTR. These programs are an integral part
of the NSF strategy to stimulate innovation and address
societal needs through the commercialization of the results of
fundamental research.
NSF is unique across the Federal Government, with a mission
to support fundamental research across all fields of science,
technology, engineering, and mathematics, or STEM, and all
levels of STEM education. Given this unique role in supporting
innovators, the agency recognized early on the potential for
greater and faster commercialization of NSF funded research.
That is why, in the late 1970s, NSF created the SBIR program.
The primary objective of the SBIR and STTR programs is to
transform scientific discoveries into products and services
with commercial potential or societal benefits. Within NSF most
of our SBIR and STTR Program officers are scientists, and also
former entrepreneurs, investors, or both.
At NSF, SBIR research topics cover the entire spectrum of
the marketplace and the Nation, and I'll tell you a story about
one of my colleagues from the University of Michigan, Dr.
Shorya Awtar. Shorya started his career getting some early NSF
funding for basic research into kinematics, which, if any of
you are mechanical engineers, that's pretty old-fashioned
mechanical engineering. However, he had an innovative idea
about how to re-map the surgeon's hand movements in a
laparoscopic surgical instrument using purely kinematics, so
when the surgeon moves his fingers this way, the end-effector
moves the same way, instead of the opposite way, as you would
expect.
Now, current technology, such as the DaVinci Robot, can do
this remapping, but it takes a whole room of electronics and
costs a million dollars. Shorya's mechanical device costs less
than $500. So he went through I-Corps, one of NSF's programs,
started a company, and got SBIR Phase 1 and Phase 2 awards, and
his company is currently operating in Michigan with several
dozen employees, producing these surgical devices as fast as
they can. Now he's back at the university, has another basic
research award, and possibly the cycle will start all over
again. We'll wait and see.
NSF's I-Corps Program provides training to potential
entrepreneurs, faculty, graduate students, post-docs, teaching
them about what the market needs are, and how they might
commercialize their product. PIs who have been through the I-
Corps Program are three to four times more likely to receive an
NSF SBIR Phase 1 award than the general population. So,
building on this success, over the last year we have put more
than 1,000 NSF SBIR and STTR Phase 1 awardees through a
condensed version of the I-Corps Program called Beat the Odds
Bootcamp.
So, in conclusion, I'll echo what we heard earlier. Small
businesses create jobs. They fuel the economy, and they support
communities. For over 40 years NSF has helped startups and
small businesses across the country transform their ideas into
marketable products and services through our SBIR and STTR
programs. NSF is constantly assessing its performance against
the goals of these programs, and has taken on new initiatives,
and new outreach, and new enhancements. We know that it takes
more than the SBIR and STTR investment to translate a technical
vision into a realized, economically viable company, but these
SBIR and STTR Programs anchor our extensive activity in
identifying and leveraging the opportunities for new
technologies.
On behalf of the National Science Foundation, and all of
our awardees, I want to thank you for your support of NSF, and
for this opportunity to highlight the programs that provide
startups and small businesses with the means to keep America on
the forefront of innovation. Thank you.
[The prepared statement of Dr. Tilbury follows:]
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TESTIMONY OF DR. MARYANN FELDMAN,
S.K. HENINGER DISTINGUISHED PROFESSOR
OF PUBLIC POLICY, DEPARTMENT OF PUBLIC POLICY,
ADJUNCT PROFESSOR OF FINANCE,
KENAN-FLAGLER BUSINESS SCHOOL,
FACULTY DIRECTOR, CREATE,
KENAN INSTITUTE OF PRIVATE ENTERPRISE,
THE UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL
Dr. Feldman. So, Chair Stevens, Ranking Member Baird, and
Members of the Committee, thank you so much for inviting me to
testify. And I am the Co-Chair of several ongoing National
Academies assessments of the SBIR program. Our first assessment
of the Department of Energy will be released at the end of
March, so I'm not able to speak to any of the findings or
recommendations of the Committee. I'm appearing today in my
capacity as an expert in innovation, and as a scholar who was
studied the SBIR program, its impacts, and also the ways in
which those impacts may be broadened. And so this program is
highly successful. It's copied around the world, and it
deserves Congress' continued and enthusiastic support.
The program strengthens the capacity for private sector
innovation in the U.S., but there are opportunities. States
have been experimenting with programs to encourage technology
commercialization, but these State resources are not evenly
distributed, and there's a tendency for the States that have a
lot of activity to get more. And so an example of the way that
we could level the playing field are increased funding for the
Phase Zero Proof of Concept centers, and about half of the
States currently have these programs. With small amounts of
money in the range of $2 to $10,000, they increase the
competitiveness of the SBIR proposals, and this is very
important for first time applicants, but also, when people have
an unsuccessful application, they can then revise it.
Another example is the SBIR State match, and these are for
companies that have been awarded funding, and it tops off the
amount of the funding, and there are currently 15 States that
offer a match that will increase the amount of funding. My own
research with Lauren Lanahan has examined this program. We find
that small amounts of money, in the range of $25 to $50,000,
increase the probability of a firm moving from a Phase 1 to a
Phase 2. That suggests that increasing the amount of funding
will increase the success of the program. Now, these State
programs are copied on an ad hoc basis, and having them be a
national program might increase the success of the program.
Many States simply don't have the access to adopt these
programs, and these are the States where there is the greatest
need.
The evidence suggests that the SBIR program is working
well, but the SBIR program is only one component of a larger
system of innovation. The program's called America's Seed Fund,
and it is meant to address this colorfully named funding gap,
the Valley of Death, but venture capital has not been moving in
with follow-on funding. Many SBIR recipients are unable to
secure the needed funding to move forward, and this is
especially true for the high risk, high reward technologies
that are central in energy independence, providing new and
better industrial materials, and really those technologies that
have the potential to create new industries. Venture capital
(VC) has increasingly been moving toward software investments,
and this is where you have lower--shorter development times,
lower capital cost, and less market uncertainty. The VC model
is also predicated on returning moneys to investors within 5 to
10 years, and that's not enough time to develop these
technologies, where there is such great uncertainty.
I'd also like to suggest that these wonderful pilot
programs you've been trying should be part of this landscape,
and should be institutionalized, and so this is a way of
nesting the companies in support organization. The idea of
public/private partnerships which would blend funding, bringing
together different users will help validate discoveries, and
move business forward. NSF, excuse me, NIH has tried this very
successful with their REACH Program, that's Research Evaluation
and Commercialization Hubs, but this could be extended to other
agencies.
And so I think that, as we think of reforming the SBIR
program, it's important to remember it works very well, and
that we need to get other components of the system supporting
SBIR in a better way. Thank you.
[The prepared statement of Dr. Feldman follows:]
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TESTIMONY OF MR. NICHOLAS CUCINELLI,
CHIEF EXECUTIVE OFFICER, ENDECTRA, LLC
Mr. Cucinelli. Chairwoman Stevens, Ranking Member Baird,
and Members of the Subcommittee, thank you for inviting me here
today to offer an entrepreneur's perspective on H.R. 3774 and
the overall SBIR/STTR program. Apologies in advance for saying
that acronym over and over again. I offer my perspective
through the unique lens of having professionally mentored or
personally managed more than 15 technology ventures that have
received approximately eight million in seed funding from the
SBIR/STTR program over the last 12 years. This funding has
spanned the NSF, NIH, DOE, NASA, and the DOD, and in many cases
led to follow-on angel, venture capital, and strategic
investment, and the commercialization of technologies that now
meet important civilian and military needs, and keep the U.S.
at the forefront of global technological innovation.
One great example is Intralase, which launched out of the
University of Michigan in 1997, and commercialized the blade
free laser technology used in LASIK eye surgery. The company
received about 2.2 million in SBIR seed funding in the 1990s,
and was eventually acquired for over 800 million in 2007. More
than 40 million people worldwide have benefited from this life-
changing technology, including me, and probably many people in
this chamber. It has created high tech jobs, economic growth,
and contributed to our technological leadership. The inventor
of this platform laser technology received a Nobel Prize in
Physics in 2018, and is now working on a way to use it to
render nuclear waste harmless. These are truly remarkable
economic and societal dividends for a $2.2 million seed
investment by the U.S. Government.
More recent examples from the past decade include H3D, a
2013 spinout from the University of Michigan with a novel
radiation imaging technology, and SkySpecs, a company launched
by Michigan grad students in 2012, which uses autonomous drones
to conduct wind turbine inspections. Together these companies
have received a total of about 2.3 million in SBIR funding, and
have gone on to create over 85 high tech jobs, reach in excess
of 15 million in combined annual revenue, and deliver
revolutionary technologies into the global energy industry. 70
percent of the U.S. nuclear power plant fleet now uses H3D
radiation detectors, while SkySpecs has completed over 30,000
wind turbine inspections in 19 countries. Again, this is a
remarkable return on a relatively small investment by the U.S.
Government.
Some ongoing projects with which I am involved include
Enertia Microsystems, with NSF SBIR funding to develop a high
precision gyroscope that can enable autonomous vehicles to
operate on inertial navigation alone for up to 15 minutes, and
iReprogram, with DARPA (Defense Advanced Research Projects
Agency)/STTR funding to develop a biocomputational platform for
cellular reprogramming. Imagine having a simple skin biopsy and
converting your own body's cells into personalized treatments
for wound healing, obesity, diabetes, cancer, and even aging.
My own company, Endectra, has received $1.3 million in SBIR and
STTR funding from NSF and the DOD, resulting in a broad
portfolio of sensor technologies for defense, medical, and
industrial applications, including distributed radiation and
gas detectors, bio-photonic probes for cancer radiotherapy and
real-time diabetes monitoring, and power meters for enterprise
energy management.
These, and thousands of other high potential companies, are
currently using SBIR and STTR funding to move federally funded
research across the wide chasm that exists between laboratory
and marketplace. But like Intralase, H3D, and SkySpecs, they
will typically not succeed overnight, but rather require seven
to 10 years, exceptional dedication, and the patient bridge
capital that the SBIR/STTR program provides. I applaud the
Subcommittee's ongoing support of this program, and its efforts
to prioritize small manufacturers, cybersecurity, and diversity
in H.R. 3774. I would also recommend that in future you
prioritize small businesses developing low carbon energy and
climate mitigation technologies in order to address the
existential threat of global warming.
In closing, SBIR/STTR funded innovations have a long record
of creating American jobs, improving our lives, and meeting
strategic national needs. Thank you for the opportunity to
participate in today's hearing, and for your continued support
of this important program. I'll be pleased to answer any
questions you may have, and, for the record, I was born in Fort
Wayne.
[The prepared statement of Mr. Cucinelli follows:]
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TESTIMONY OF DR. JOHNNY PARK,
CHIEF EXECUTIVE OFFICER,
WABASH HEARTLAND INNOVATION NETWORK
Dr. Park. Thank you for the opportunity to speak to you
today about the SBIR and STTR program. I hope you'll find that
my own experience provides compelling evidence of the value of
this very important program. I was a professor at Purdue doing
research in robotics, machine learning, and wireless system
networks. In 2008 I received a grant from USDA (United States
Department of Agriculture) to develop technologies that could
automate labor intensive activities in agriculture. I knew very
little about agriculture back then, so this project served as
an entry door for me to this very important industry.
In that USDA project, my work focused on automating the
process of monitoring insect populations. Traditionally,
monitoring insect populations is done by deploying a large
number of cardboard sticky traps in the field. Each week,
workers have to go in the field, first find a trap, open it up,
count the number of bugs that are caught in the trap, write the
number down on a piece of paper, clean the trap up, hang it
back up, and repeat that process for hundreds of traps deployed
in the field. As you can imagine, this is very labor intensive,
but it's critically important because those trap numbers
determine and inform when, where, and how much insecticide to
apply.
About a year of research and development at Purdue, we were
able to demonstrate the feasibility of automatically monitoring
insect populations with a wireless network of highly
specialized sensors. Because of the potential for this
technology to drastically improve the practice of pest
management, I started a company, Spensa, to commercialize the
research. But as with many technology startups that stem from
university research, commercialization took much longer than
anticipated. We had several problems to resolve in order to
take our lab prototype into a full commercial product.
The SBIR program helped us in two specific ways. First, it
provided a necessary infusion of money to allow us to complete
the research and development to the point where venture capital
could participate. Second, the SBIR program taught me, through
its very well organized SBIR grantee workshops, how to navigate
between the paradigms of scientific research and
entrepreneurship. Both were critically important to an
academic-turned-entrepreneur like myself.
Spensa received approximately $1.5 million in SBIR grants
from USDA and NSF. Spensa was named by Forbes as one of the top
25 most innovative ag tech startups in 2017. Spensa created
jobs, hiring over 70 technical and business professionals. Its
products helped growers reduce the labor costs associated with
pest management, and helped them make more informed and timely,
judicious spray decisions. On average, Spensa doubled its
annual revenue in each of the last 5 years before it was
acquired by DTN, which continues to operate the business from
the Purdue research park where Spensa was founded.
But well beyond this impact on Spensa was SBIR's impact on
me. The program taught me to understand entrepreneurship as a
customer-centered engine for innovation that accelerates change
through the strategic, value sensitive, and nimble deployment
of resources. And resources include not only financial capital
and intellectual property, but also the team's talents, time,
and passion. The entrepreneurship model is thus a resource
engine, as each new asset comes to fruition, becomes the basis
for the new deployment and generation of value, ultimately
helping others in need, and making their lives better.
As I mentioned earlier, Spensa was ultimately acquired, but
my current role as CEO of the Wabash Heartland Innovation
Network, or WHIN, is an even greater and truly unique
opportunity to put research and entrepreneurship together to
meet the needs of rural America. With very generous funding
from the Lilly Endowment, WHIN was created by the 10 county
rural region of Indiana with the goal of enabling the region to
leverage its many assets, especially Purdue University, Ivy
Tech Community College, and strong manufacturing and
agricultural sectors to improve the region's economic
prospects. WHIN is a nonprofit organization with a very
ambitious goal, and I am leading this organization like a
startup. I believe WHIN is benefiting tremendously from lessons
learned from Spensa. I believe its story illustrates how the
SBR program, in action with Spensa, continues to generate
economic growth. In the long run, WHIN envisions the Wabash
heartland as the global epicenter of digital ag and next
generation manufacturing, powered by IoT technology. That is
quite a return for $1.5 million in SBR grant funding to a
little startup in West Lafayette, Indiana.
I hope this gives you an idea of both the short and the
long-term impact of the SBR program. I hope you will continue
to give it your full support. Thank you.
[The prepared statement of Dr. Park follows:]
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Chairwoman Stevens. And, with that, we're going to begin
with our first round of 5 minute questions, and the Chair is
going to recognize herself at this time.
Thank you again for the very informative testimony. A lot
to unpack here, and I think where I'd like to start is kind of
where we left off on the commercialization and the flexibility
component of things. Obviously we're always in such a rush,
commercialize, commercialize, but we also need a little bit of
flexibility and some time with that. We need to recognize not
everything is going to have the same turnaround for
commercialization. In fact, Dr. Park, I almost believe--I can
guarantee you that I was at a venture connector's presentation
in Louisville, Kentucky, where I heard about your company in
2014, and thought, wow, what a neat idea, and fascinating six
years on to see what Spensa's been able to achieve and do.
But if you don't mind, just--Mr. Cucinelli and Dr. Park,
just talking a little bit more about the flexibility,
particularly even at the beginning stages, when you're, you
know, processing the award, getting the dollars, you know,
working with the agency, and then also maybe some thoughts that
you might have around allowing the agencies to implement more
flexible award structures to make them more compatible with the
pace of innovation? If you don't mind shedding light on that?
And I'll let you two duke it out for who goes first. Yes.
Dr. Park. I'll get started. Yes, so, again, I'm a first-
time entrepreneur, and SBR program was something that I was not
very familiar with. But as any businesses--as we embark on
commercializing a research project to a commercial market, you
are embarked with very different scenarios, something that you
had not anticipated. And because I believe SBR programs and
program managers stem from kind of research related projects,
they understand the uncertainty of the path that we're on. So I
was very appreciative of our program manager at NSF being very
flexible and understanding of our need for pivoting, even
during the project.
For instance, we had--in our proposal was to develop a
certain type of sensor that we believed would solve a certain
issue that we had in mind, but in about 2 to 3 months into the
project, we quickly realized that the sensor type was not
viable commercially, and so we requested to the program manager
that we think we need to change the type of sensor that we need
to research on, and program manager was very, very flexible on
allowing us to do that because he saw ultimately is this type
of flexibility and pivoting was a critical piece of making sure
the research moves on, and successful commercialization path.
Chairwoman Stevens. Yes. Great.
Dr. Park. Um-hum.
Mr. Cucinelli. So I have two observations. One is that I
really like the idea in the legislation of the second Phase 2,
the follow-on funding. So the idea that the government can
double down, so to speak, on the investments that are going
pretty well, but need a little more push into the private
sector. I think, from what you've heard about these different
companies that have succeeded, you can tell that there's a
significant return on investment here, and I think, especially
with what I call the hard tech, physical science-based
companies that have a really big chasm to cross, a big Valley
of Death, they can really be helped by that second Phase 2,
when it's appropriate. It has to be vetted properly.
My second observation is it would be really helpful if the
agencies that award SBIRs and STTRs by contract, as opposed to
as a grant, push more of their funding up front so that the
money isn't tranched in small drips and drabs along the way.
So, for example, with the $150,000--I'm--not to pick on DOD,
but with a DOD contract, you're going to get $30,000 every 2
months along the way, and then a final project payment, as
opposed to an NSF grant, where you're going to get $150,000,
now $225, right up front. If you're talking about a brand new
company that's trying to jump out of the lab and into the
private sector, that DOD contract is very difficult to manage
because you don't have any working capital yet, whereas the NSF
is giving you that money right up front. So if there was a way
to encourage the contracting agencies to just move some of that
funding earlier, I think it would be very, very helpful.
Chairwoman Stevens. Yes, as needed. OK. I'm going to cede
my time to the next questioner, but we are going to do another
round of questions. So, with that, I'm going to recognize Dr.
Baird, and then we'll go through everyone that's here, and then
we'll start again.
Mr. Baird. Well, I'm going to continue on, Mr. Cucinelli,
and have Dr. Park give his impression of, you know, you started
with an SBIR award from USDA, and then you went to one from
NSF, so can you share your experiences in those two programs,
and how effective or efficient they were to work with?
Dr. Park. Right. So USDA SBIR, we only received Phase 1,
and then we received NSF Phase 1, 2, and 2B. We did apply for a
USA Phase B--I'm sorry, Phase 2, but we did not get it, so I
have a lot more experience with NSF than USDA. But both cases
we were awarded the full amount up front, at least for Phase 1,
but Phase 2 was tranched. But I think it was very helpful for
us to get--again, I agree that, as a startup, you need working
capital, and this is already a very competitive process, and
this has been vetted for, you know, maybe 10, 20 percent of the
applications only get Phase 1. So I think having that--going
through the vetting process, at least in Phase 1, my
recommendation is also to have all that money put in up front.
I would also say that NSF has wonderful grantee workshops.
Every time I attend the workshops, I am so energized and
inspired, and I learn so much because, again, the business
formation, venture capital raising--and that is something that,
you know, you don't really learn much, and--but having the
experience of like-minded entrepreneurs and experienced VCs as
a speaker, and learn from them firsthand, for me, it was
extremely valuable as a first time entrepreneur.
Mr. Baird. Thank you. My next question, Dr. Tilbury, what
steps does the NSF take to measure the success of its two
programs?
Dr. Tilbury. So we do a lot of assessment of all of our
programs at NSF. We certainly survey the awardees and get their
feedback on what they're doing, and we've made quite a lot of
changes in the last few years. In fact, a couple years ago we
changed the program so people could submit a pitch before they
had to register with the Federal Government, and fill out 37
forms before they could write a 15 page proposal, and hear that
their project wasn't appropriate for NSF. So we try to
streamline, based on the assessment that we had, and the
feedback from the PIs, and we, you know, take data.
So there's some data in my written testimony, but a new
number that I got this morning was that, if you look at awards
we've made since 2014 there's been more than $9 billion in
subsequent funding that these companies have received from
venture capital, or other awards, and more than 100 of those
companies have been acquired, which is often a goal, as Johnny
Park talked about with this company. Do you have more specific
questions, or----
Mr. Baird. No, I think that's good. Dr. Feldman, would you
continue that on, what you look for, what criteria you used to
measure the success?
Dr. Feldman. The success of the program, I think, extends
way beyond just the individual companies, and so the SBIR
program at universities has really helped to change the culture
and to put more emphasis on commercializing academic
discoveries, and so that has been very positive. We also know
that, through the program, agencies are able to source great
ideas from small companies, and those companies will have ideas
that have escaped larger corporations. And in--we have some
evidence that this induces other people to look at those
topics, so that fundamental discoveries that result from SBIR
projects actually help to cede scientific fields that work--
that result in translational, additional follow-on work. And so
that is sort of an indirect effect. There are lots of effects
in creating follow-on products, generating patents, but the
generation of fundamental knowledge really helps to keep
America competitive.
Mr. Baird. Thank you, and I'm out of time. Mr. Cucinelli,
your answer to the previous question is going to have to count
as my question to you. So thank you, and I yield back.
Chairwoman Stevens. And with that, the Chair would like
recognize Congressman Tonko for 5 minutes of questioning.
Mr. Tonko. Well, the Member would like to acknowledge your
recognition, so thank you, Chair, and welcome, to our
witnesses. America's SBIR and STTR programs support our
Nation's most forward-thinking entrepreneurs and innovators.
The Small Business Innovation Research and Technology Transfer
Programs have proven to be among the most successful Federal
programs for driving technological innovation in U.S. history.
Combined, they, excuse me, have delivered more than 70,000
patents, including extraordinary innovations in agriculture,
defense, energy, health sciences, homeland security, space
transportation, and other fields. Phase 1 and Phase 2 SBIR
awards have made it possible for countless jobs to be created
in my district in the capital region of New York. Thanks to
these, and other similar programs, our region has built itself
into a boom in high technology innovation and economic
development.
Among our many success stories, four stand out from our
capital region. The first is Kitware. A company based in
Clifton Park, New York, Kitware's first round of funding came
from the SBIR program in 1998, when they received a Phase 1
award from the Air Force to develop technology related to the
visualization of uncertainty in data. While this effort did not
progress to Phase 2, they were able to attract additional
customers with the developed technology to fuel their early
growth. Since then they've relied upon SBIR/STTR program to
develop advanced technology that improves lives, grows
businesses, and meets the critical needs of the Federal
Government.
Kitware's story is inspiring, but in many ways it is also
entirely typical of SBIR companies. New York's capital region
is also home to another SBIR success story, that being
Automated Dynamics, which credits their existing technology to
the SBIR program. In fact, Automated Dynamics was one of the
original inventors of 3D printing in the 1980's, with the help
of a National Science Foundation SBIR grant. This is now an $8
billion a year industry that is expected to grow 30 percent
this year. Automated Dynamics also helped to develop its core
technology, namely additive manufacturing of advanced
composites--composite structures through Army and Navy SBIR
awards. They remain the world leader in this technology, and
while they have managed to outgrow the SBIR program, as they
are no longer a small business, they continue to credit the
program as a springboard for their success.
Speaking of grateful SBIR winners, International Electronic
Machines, IEM, a small company located currently in Troy, New
York, has said they, quote, and I quote, ``have had the great
privilege and honor of participating multiple times in the SBIR
Program''. SBIR contracts that IEM has won have helped support
the company over the three decades that IEM has been in
business, and have resulted in more than 50 patents, both here
and overseas. Some of the products that have resulted from
their SBIR work have generated millions of dollars in revenue
over the years, supporting the success of the business, and
their employees, consultants, vendors, and broader community.
Last, but not least, Innovative Technology, Inc., or MITI
for short, has been in business in the capital district for 25
years, and is a previous recipient of the prestigious SBIR
Tibbetts Award. They shared how they believe that they, and the
capital district tech valley, have benefited greatly from the
SBIR/STTR program by making it possible to keep engineers and
scientists locally, but also to attract and retain high caliber
international technologists and researchers.
These extraordinary successes demonstrate, to me, clearly
that research funding has a powerful economic return, and we
need to continue to fight to ensure these agencies have the
funding they need, and, in turn, ensure productive funding
levels for the SBIR/STTR programs. To me, the reinvestment in
the community from SBIR and STTR is absolutely amazing. It's
keeping talent at work, it's providing for additional people to
claim my district as their now homefront, and is unleashing
untold amounts of progress and success that obviously
percolates into the greater society, so that we're all
benefited by it.
So--wanted to share those on the record in the 5 minutes
that was allotted, but I think it's important to document the
real-life outcomes in our given congressional districts, and
for that we thank you. I yield back.
Chairwoman Stevens. With that, the Chair's going to
recognize Mr. Balderson for 5 minutes of questioning.
Mr. Balderson. Thank you, Madam Chair. Thank you, panel,
for being here, and this first question that I'm going to ask I
can direct it to the whole panel, and Dr. Tilbury, you could
start from there, and we'll go down along. But thank you all
again for being here, and when I'm talking to small business
owners in central Ohio, I often hear about the most important
things that Congress and the Administration can do to help
small businesses grow and create new jobs is to reduce taxes on
businesses, make the tax code simpler, and clear away
unnecessary and excessive government regulations. In the small
businesses you work with, what barriers to success do you see?
Dr. Tilbury. So, at NSF, we fund small businesses to try to
take the technological risk out of their ideas, so these are
the high tech companies, and this is the stage before venture
capital really has an appetite to come in. The companies that
we fund, in fact, 92 percent of them have fewer than 10
employees, and 77 percent are less than 5 years old. So these
are really young, really small companies with really high tech
ideas, and they need this SBIR or STTR funding to get over that
technological risk.
Dr. Feldman. So as I'm sitting on a panel with people from
Michigan and Indiana, let me reveal that I'm from Ohio, and I'm
a Midwesterner who had to go south----
Mr. Balderson. Thank you very much. I will ask my staff why
they didn't tell me that.
Dr. Feldman. Sorry. And--it's probably somewhere on a very
deep resume. But let me mention, for these innovative small
firms, taxes are not the problem because they're not profitable
yet. Really what they require is more in terms of resources and
support. I think that, you know, it is encouraging to hear the
importance of training things with the I-Corps Program. So
really smart scientists, who are then suddenly confronted with
starting a business, that's a completely different set of
skills, so providing that type of expertise is costly. I'm a
great believer in the State Technology Economic Development
Programs, and, you know, that, again, provides incredible
resources to small companies.
Mr. Cucinelli. So, again, to comment on the taxes issue,
boots on the ground perspective, I don't pay any taxes because
I spend every single penny of my SBIR funding as fast as I get
it. I spend it every year. I work with my accountant to make
sure that I don't pay taxes until I become profitable, so
that's how I manage that. I get really frustrated when people
talk about small business, and they're talking about the sort
of Main Street bricks and mortar small business, whereas I'm
doing scalable tech startup business. They're very different in
terms of their needs, and that's an example where that dialog
can go sideways. It sounds like you've got a great handle on
that.
Second point is to build on something Dr. Feldman said, but
from a different perspective, the idea that the SBIR program
can provide cultural benefits in the universities. As a mentor
in residence, or entrepreneur in residence, what I've seen is I
can use the SBIR program as a way to help influence that
culture shift when I'm coaching a senior faculty member. You
know, if I'm working with someone who has built a laboratory
over the course of 20 years, and knows how to manage graduate
students, Ph.D.'s, post-docs, they don't know how to run a
small business yet, and I can use the SBIR program to have a
framework to help them begin to adopt the right mindsets.
Dr. Park. I would concur, tax was not at all an issue for
us throughout our--the course of Spensa. I would say, yes, I
think the impact the small business or tech startups has in the
economy is great, but I would also like to emphasize its impact
on people, the entrepreneurs, the researchers and scientists
who may not have gone to entrepreneurship if it wasn't for
SBIR, like myself, right? I was an academic, but SBIR really
opened an opportunity for me to get into starting a startup,
which led to now leading something that I had never imagined
that I could do.
I would really consider and encourage you to think about
not just the company's impact on the economy. How about the--
all the people that have been touched by SBIR? What's their
second career or third career looks like? How have they really
changed the way they lead, the way they run businesses because
of the impact of SBIR?
Mr. Balderson. Thank you all very much. I yield back.
Chairwoman Stevens. The Chair would like to recognize Mr.
Gonzalez for 5 minutes of questioning.
Mr. Gonzalez. Thank you, Madam Chair, and thank you to our
panel. Dr. Feldman, I too am from Ohio, went to Ohio State. Mr.
Cucinelli, you will see that, in this Committee, not only are
we bipartisan, but we can actually work across enemy lines
geographically as well. This is a fantastic Committee in that
regard. So, as many folks here would know, I'm somebody who
wants to make sure that we are properly funding our research
enterprise, that we're supporting entrepreneurs in particular
in fast growing industries, and so, as a general premise, as
somebody who'd be very supportive of SBIR and STTR, I do have
some questions around how we're measuring success, and I want
to start with Dr. Tilbury.
So you kind of highlighted some brief data points at the
end, but I'd love to hear kind of any numbers you have, or any
barriers to acquiring these numbers, around, you know, percent
of companies that receive follow-on private investment, dollars
raised, percent still operating versus acquired employment
numbers, geographical split. I'm trying to figure out kind of
how we're tracking from funding to viable company.
Dr. Tilbury. So I might defer that to Dr. Feldman----
Mr. Gonzalez. OK.
Dr. Tilbury [continuing]. But I will say we are trying to
track all of those numbers, and we have data on people who get
the Phase 2B, which is a matching. If you're----
Mr. Gonzalez. Right.
Dr. Tilbury [continuing]. In a Phase 2, and you get
external input, then NSF will match that up to a certain
amount, so that number we absolutely know, because we gave them
matching.
Mr. Gonzalez. Right.
Dr. Tilbury. But as was also mentioned earlier, some of
these companies, you know, the Phase 2 is a couple of years,
and it might take many more years until they're commercially
viable, or they're acquired. And so, during that lag time, I
think we are absolutely interested in acquiring that data, and
that's why we work with the National Academies. And you may not
be able to say yet, but----
Dr. Feldman. Yes, and so I am co-chairing the National
Academies assessment of the SBIR program----
Mr. Gonzalez. OK.
Dr. Feldman [continuing]. And I'm not able to really talk
about our findings yet, and I'm happy to come back. Our report
on the Department of Energy will be released in March.
Mr. Gonzalez. OK.
Dr. Feldman. But, you know, this is an important question
because we have a need for government investment because these
technologies are so early stage, and so risky----
Mr. Gonzalez. Yes. Absolutely.
Dr. Feldman [continuing]. And so it's very complicated, and
this is where we're now able, with new digital technologies
scraping the web, to sort of be able to follow this sort of
initial receipt of a grant to companies.
Mr. Gonzalez. Right.
Dr. Feldman. Sometimes when companies fail, that might be
appropriate, right?
Mr. Gonzalez. Yes.
Dr. Feldman. Because the technology----
Mr. Gonzalez. That happens.
Dr. Feldman [continuing]. Right--wasn't----
Mr. Gonzalez. Yes.
Dr. Feldman [continuing]. Going anywhere. And then I think
the entrepreneur, the entrepreneurial team, other people in the
company, will then be recycled and do other things in a local
economy.
Mr. Gonzalez. And then, if I could step in for a second?
Dr. Tilbury, the average grant size is what? So you talk about
there's some who are kind of operating for years before they
receive the follow-on funding. I ran a venture-backed company
at one point. We didn't have years, right? You know, you're
usually doing it in 18-month increments.
Dr. Tilbury. So I believe that--so it's not an average. So
the Phase 1, if you get it from NSF, is $225,000----
Mr. Gonzalez. OK.
Dr. Tilbury [continuing]. All in one shot----
Mr. Gonzalez. And that'll be----
Dr. Tilbury [continuing]. And then----
Mr. Gonzalez [continuing]. Two to three----
Dr. Tilbury [continuing]. Phase 2----
Mr. Gonzalez [continuing]. Employees.
Dr. Tilbury [continuing]. Has been increased now to
700,000.
Mr. Gonzalez. Yes.
Dr. Tilbury. And then they can get matching on top of that,
and there's----
Mr. Gonzalez. Got it.
Dr. Tilbury [continuing]. Supplements on top of that. So
there's a lot of--even though that's the base number, there's a
lot of extra supplements, opportunities.
Mr. Gonzalez. OK. And then, with my last minute, Dr.
Feldman, without getting into specifics of your report, and
what's you're going to release, what are the key barriers, that
you're seeing to acquiring the data that I outlined that I
think would be helpful, in terms of collecting it?
Dr. Feldman. Well--and--so ideally we would like to know
who was applying to the program, right, and then not only--we
now know, through the SBA, who was awarded funding, but if we
could follow those who applied and didn't get funding, or did
they come back, that's capturing another kind of learning, so
that would be very valuable. It would also be much easier for
us if we could access some of the census data centers, and the
data that is behind that sort of security wall.
Mr. Gonzalez. All right. Thank you. Yes, sure, Mr.
Cucinelli.
Mr. Cucinelli. I don't have this in front of me, I
apologize, but in preparing my written testimony, I found an
Air Force report from I believe 2014 that is worth taking a
look at. I'll followup with your staff, if you'd like----
Mr. Gonzalez. That'd be great.
Mr. Cucinelli [continuing]. But it did this across hundreds
and hundreds of SBIR awards, and came up with metrics----
Mr. Gonzalez. Thank you. And, as I said at the beginning, I
want to be helpful, I want to empower you guys, but we need
some data so we can just measure how we're doing. With that, I
yield back.
Chairwoman Stevens. Thank you, Mr. Gonzalez. We're going to
do one more round of questions. It might just be Dr. Baird and
myself, but we've got a lot to chew on here. I wanted to go
back to the geographic diversity component that you brought up,
Dr. Feldman. You talked about the pockets of prosperity in
university towns, and then you also talked about how this
system, with SBIR and STTR funding, works well in some places,
but not everywhere. And I know the other part of what you do is
the research on the geography of innovation. And I'd love to
hear a little bit more about how we can better democratize
innovation, especially through the SBIR program, so that towns
all throughout this country can participate in our innovation
economy. And if you have any thoughts, I'd really appreciate
it.
Dr. Feldman. Thank you. And so, you know, as we study this,
we do see these pockets of prosperity, mainly in college towns,
where the SBIR program is working well. But one of the problems
when we rely on venture capital funding, when you take money
from outside, and, you know, it--you're not going to be able to
stay, in many cases, so companies will relocate. And also,
given that the venture capital model is predicated on a 5 to 7
year return, what that means is that there will be an exit, and
with that exit it's very likely that you would have the company
relocating as it was acquired. And so it doesn't really keep
the company local, and grow to employment. And I think one of
the things about the Phase 2B additional funding helps stream
tips--bring that along. Also, having more proof of concept
centers.
But, you know, as we talk about these companies, SBIR is
not really meant to be a jobs program. It is an innovation
program, but we need something else in place to give us the
jobs that we need in many parts of the country to spread that
prosperity more widely.
Chairwoman Stevens. Right. And it's, you know, spanning 11
agencies for SBIR, five for STTR funding, and you sort of
wonder, you know, does it help to have regions as designated--
self-designated areas, for instance. I know the Economic
Development Administration has looked at this. Obviously that
might get overly prescriptive, and too quick--it could get
overly prescriptive too quickly, however, you know, when we're
looking at how do we make sure that we're spreading the peanut
butter throughout our--all of these great towns and
communities, and into the hands of innovators. I mean, part of
why we are having this hearing, and having this go into the
congressional record, is that we want America to hear this. We
want people to know that this is available, and whether you're
at one of the big universities or not, that these 11 agencies,
right, are coordinated in this way, and in their own research
areas.
And this is a small point, but I just wanted to ask about
it, which is the administrative fee that Congress has
authorized that these pilot programs, you know, it's allowing
agencies to use the 3-percent of their SBIR funds for new
activities such as outreach, and commercialization, and
oversight, and administration of the program, and this is known
as the administrative fee pilot. There was this 2016 GAO
(Government Accountability Office) report that found 7 of the
11 SBIR agencies spent $19.1 million of these funds. This is
going back to Fiscal Year 2014. And, Dr. Tilbury or Dr.
Feldman, do you have, you know, any examples of this that you
can elaborate on for us, particularly how agencies are tracking
the outcomes of these efforts? I know this is a little bit of
what Congressman Gonzalez was talking about, but--question
about--should we be--is this one of the pilot programs we
should be expanding? Is this helpful?
Dr. Tilbury. Absolutely, it's a helpful program. I can tell
you that we use some of those administrative fees to send our
program directors on outreach trips to underserved geographic
areas, underserved communities. We have a joint program right
now with GEM, the Graduate Education for Minorities.
Chairwoman Stevens. Yes.
Dr. Tilbury. We use some of those funds for the Beat the
Odds Bootcamp that we put the SBIR Phase 1----
Chairwoman Stevens. Right.
Dr. Tilbury [continuing]. People through. We sponsor trade
shows that provide commercialization opportunities for
grantees. We use that to launch this project pitch that I told
you about, which allows people to come in at any time with a
brief pitch about their idea and see if it's appropriate for
NSF, to fund this National Academies study about the impact of
the SBIR program. So those are the kinds of things that we do
with the administrative fee that are not directly to small
business, but absolutely supporting the program.
Chairwoman Stevens. Right. Thank you. Thanks so much. All
right, with--I'm out of time.
Mr. Baird. Thank you. You know, I'm a veteran, so I'm kind
of partial to veterans. In fact, I think we've got a bill
that'll be signed hopefully next week or so that encourages an
increased outreach for veterans in the STEM program. So, Dr.
Tilbury, you mentioned in your testimony that there's a
veterans research supplement that attracts veterans into the
STEM enterprise. Would you care to elaborate on that a little?
Dr. Tilbury. So we have a lot of programs to attract
veterans into the research enterprise, research experience for
veterans, and I believe they can work with a small business
through an SBIR, so the small business would get a supplement
to bring in a veteran to help them in their activities. I know
we certainly do that for all the basic research awards that we
offer.
Mr. Baird. Any others want to comment about that, regarding
veterans, and----
Dr. Feldman. Regarding veterans, what we see is
disproportionately veterans come from rural areas in the south
and west, and they're more sort of geographically isolated.
People would like to return to their small towns, but there are
not necessarily opportunities for them. And veterans make great
entrepreneurs, right? They're just disciplined, and they know
how to work together, so I think this is an area where we could
have more fruitful engagement.
Mr. Baird. Anyone else?
Mr. Cucinelli. Yes, I completely agree. I have a number of
friends who are currently running small businesses started from
scratch, and the skillsets required to do that are a perfect
overlap with what many people experience in the military, both
in terms of their training and their experience, the creativity
under fire, so to speak, the discipline, the dedication that it
takes to see something through for 7 to 10 years. So pulling
more veterans in is going to be invaluable in increasing the
success of the program.
Dr. Park. I would just mention, in relation to rural
communities, there are--the Midwest region has traditionally
been kind of labeled as there's not enough capital, but
investors are waking up, and there's--increasingly more
investors are targeting Midwestern companies, including rural
communities. So I think, to me, SBIR is a form of investment
from the government, and so if venture capital is waking up to
invest more, I think there is a case to be made for SBIR
program to consider geographically diverse investments to
support rural communities.
Mr. Baird. Well, what I just heard was good news, because
most of those veterans, if they've been deployed, or been in
the service for a period of time, they probably just want to go
home, and a lot of those, you just mentioned, from rural areas,
so----
Dr. Park. That's right.
Mr. Baird [continuing]. That's good news. Thank you very
much.
Dr. Park. Um-hum.
Chairwoman Stevens. Thank you. And now the Chair will
recognize the gentleman from the great State of New York again
for 5 minutes of questioning.
Mr. Tonko. Thank you, Madam Chair. The many, many hearings
that we've had recently have spoken to the need for us to
maintain a very strong competitive edge, especially when it
comes to critical technologies, so my question to any and all
of our witnesses is what role do you believe the SBIR and STTR
programs can play in the United States' innovation policy, and
in helping our Nation maintain science and technology
leadership in what is that increasingly competitive world?
Dr. Tilbury. So I believe the SBIR program is a critical
component of that increasing competitiveness because it allows
the results of basic fundamental research, which is primarily
funded by the Federal Government, to make the transition into
commercialization. And, as we've heard, it can be a long and
slow road to commercialization, and it takes not only
investment, but also patience, and passion, perseverance. And
so I think the SBIR program helps that transition into the
current industries that we have, to strengthen them, as well as
create new industries that we haven't imagined yet.
Mr. Tonko. Thank you. Anyone else?
Mr. Cucinelli. I had the privilege of being involved in a
fuel cell startup between 2009 and 2011 in Europe, and it was
very, very difficult to get the initial seed capital. I saw
just a fundamental difference between here and there, and we
talked constantly--some of the people who had been on this side
of the pond would lament with me in the pub at lunch about how,
you know, I wish we had the SBIR/STTR program to get us to the
venture capital. And we eventually raised about I think 3.2
million Euros, or something like that, but it was incredibly
difficult. So I think our system here works much, much better
to get these early stage companies out of the gate, and get us
to a position where we might eventually be able to double down
on some of this innovation, and maintain that leadership.
Mr. Tonko. All right. Yes? Dr. Feldman.
Dr. Feldman. I think also it's important to remember that
this program is just part of our larger innovation system, and
we really need to make sure that basic research is going on,
these sort of fundamental discoveries, the serendipitous
inquiry that will, you know, sort of provide the seed corn for
moving things forward, and we don't get too far out of balance
by focusing on things that are immediately commercializable and
more short range.
Mr. Tonko. Well, there are some of those--some fiscally
conservative think tanks that monitor action on the Hill that
would advocate that there be no Federal dollars shared with
research, that--they don't believe it's appropriate. What would
your response to that be?
Dr. Feldman. That they are wrong, and that would be an
awfully fun debate to engage in, because I think it's
critically important. And so in the U.S. for a long time we
have issued the idea of industrial policy, yet the, you know,
we see that in Asia there is a lot of industrial policy, and a
lot of targeted investment, and I think this is the wrong time
for us to be questioning government's role.
Mr. Tonko. Dr. Tilbury?
Dr. Tilbury. We talked about the commercialization. NSF is
celebrating its 70th anniversary this week, and he mentioned
the LASIK eye surgery. Now, that came out of fundamental
research in lasers. They weren't trying to build eye surgery
when they did that fundamental, basic research. They were
trying to understand high energy physics. And so I think we
need to continue to fund that fundamental basic research that
you're not sure where it's going to lead, because it might lead
someplace really interesting.
Mr. Tonko. Right. And--yes, sir?
Mr. Cucinelli. So I'm----
Mr. Tonko. Mr. Cucinelli.
Mr. Cucinelli [continuing]. Teaching a course in
entrepreneurial leadership to graduate students, Ph.D.s, MBAs,
and they asked me the other day, well, where do we get our
ideas from? And I said, well, you know, you find a pain point,
and you think about it, and you live it, and then you go and
fix it, but you can also go and look to the labs. Look around.
Look to your engineering colleagues who are taking courses in
aeronautics, or whatever, and you'll find innovation there.
That's the basic research, and it's being looked for by these
bright young innovators who are going to see the idea that maps
over to the pain point they've identified, and then go find the
professor and his or her lab team, and make a company out of
it, and make it go. And they'll use SBIR/STTR to do that. But
they can't do it if they don't have the basic research in
place.
Mr. Tonko. Thank you. So I'm hearing, with sound rationale,
you would reject the advice of those who suggest the Federal
Government not apply any dollars toward research. Thank you so
much. That's encouraging. I yield back.
Chairwoman Stevens. Thank you, Mr. Tonko. We didn't invite
them to the hearing, so--and, you know, a big thank you to our
witnesses. You know, we're so proud of the NSF, and your
leadership as one of the 11 SBIR agencies, and what I think we
kept hearing today, which is that you're such an example, and a
leader of how to do this right.
And, you know, thank you, Dr. Tilbury, for your leadership,
and Dr. Feldman for not only your leadership at the Academies
at this time, but also for your great research contributions,
something that I know is very important to the economic
development conversation, as well as how States look to do that
technology-based economic development strategies, and so we
work very closely with our State partners as well. And then,
obviously, a treat to have you here, Mr. Cucinelli, from
Michigan, and, you know, thanks for your fabulous leadership,
not only as an entrepreneur, but also as an educator, and
that's the other piece of it. And, Dr. Park, you know, just
wonderful to hear not only about your business success, but
what you're also doing with WHIN and the network that I think
is going to have some tremendous effects.
We like to say this will--I'll say this, this was all Dr.
Baird's idea, OK? The legislation, the hearing, and it's the
best in business here on the Science Committee, which is that,
you know, we talk about the things that bring people together,
and this is what the country wants to see. This is part of the
doing and delivering agenda for our country, and we are looking
forward to having you back when we get this legislation marked
up, passed, and signed into law, and continuing to see the
growth of SBIR, and the lives that are changed and influenced.
And, yes, as an innovation program, because that is what
America does really well. Our plight of innovation in the post-
9/11 era, in particular over these last 20 years--we were the
ones who proliferated the Internet, propagated the iPhone,
mobile apps, just to name one segment of our innovation economy
that's really quite tangible to all, so thank you again.
The record's going to remain open for two weeks for
additional statements from Members, and for any additional
questions that the Committee Members may have of our witnesses.
And at this time our witnesses are excused, and the hearing is
adjourned.
[Whereupon, at 3:20 p.m., the Subcommittee was adjourned.]
Appendix I
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Answers to Post-Hearing Questions
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Appendix II
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Additional Material for the Record
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