SSTI letter to Senate supporting SBA innovation programs

May 30, 2019

As covered in the last Weekly Digest, the U.S. Senate Committee on Small Business and Entrepreneurship held a hearing on reauthorizing SBA’s innovation programs. SSTI was invited to add to the hearing’s record, and our letter supporting SBIR/STTR pilot programs, FAST and entrepreneurial development programs is produced, below.

 

Dear Chairman Rubio and Ranking Member Cardin:

On behalf of numerous state, local, university and nonprofit organizations around the country, SSTI thanks you for your leadership on reauthorizing the U.S. Small Business Administration’s (SBA) innovation programs. The May 15th hearing on this issue addressed many important policy implications for American competitiveness, and we appreciate the opportunity to add our perspective for the record.

SSTI, a nonprofit organization founded in 1996, strengthens initiatives to create a better future through science, technology, innovation and entrepreneurship. The members that comprise our network work with researchers and entrepreneurs to transform American innovations into new solutions, products and jobs. These organizations provide technical assistance, business development services, investment capital and other support to scale innovations into economic opportunity.

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are the most important tools for supporting innovation related to the SBA. A multi-year review by the National Academies found that SBIR/STTR successfully produced commercialization outcomes[1] and their analysis adds to numerous stories of individual business successes catalyzed by the programs. Many organizations, including many SSTI members and those represented by the panelists on the May 15th hearing, are willing to testify to the importance of the overall program.

The administrative funds authorization (15 U.S. Code § 638mm) is a noteworthy “pilot” program within the SBIR/STTR code. Enabling agencies to use a portion of their allocation for administration facilitates program outreach, information availability, and commercialization assistance. The SBA’s recent fiscal year 2016 report[2] presents a wide range of agency uses of these administrative funds, including participating in the SBIR Road Tour, hosting webinars targeting rural companies, establishing an application assistance program for underrepresented entrepreneurs, providing commercialization assistance to hundreds of businesses, and reducing the time between applications and awards. These activities are intrinsically logical and valuable to the operation of the federal government’s primary tool for cultivating innovation. The SBA report further shows that the agencies are tracking—and achieving—tangible outcomes. We urge the committee to continue enabling these technical assistance, program improvements and outreach activities by making the administrative funds pilot permanent.

A second pilot of note is the Phase 0 proof-of-concept program (15 U.S. Code § 638jj) for the National Institutes of Health (NIH). This authorization has enabled the creation of commercialization-focused centers at medical sciences innovation clusters around the country (in Kentucky, Minnesota and New York). SSTI strongly supports a model designed to leverage federal funding through regionally-based public-private innovation strategies, and we look forward to seeing NIH’s report on the model’s impacts.

The Federal and State Technology Partnerships Program (FAST; 15 U.S. Code § 657d) also leverages federal funding through local commercialization expertise, as well as a local funding match. FAST seeks to increase awareness and outcomes in states that do not have a strong record in winning SBIR/STTR awards or to underrepresented entrepreneurs in any state. By working through state-level organizations, the program is able to reach the right potential audience and provide the most useful assistance as efficiently as possible. For example, Iowa’s assistance and mentoring network saw 86 applicants win 19 awards in FY 2018 alone, and Tennessee’s initiative so far has led to 33 applications with (at least) six awards. For states that have placed in the bottom half of all states by number of awards, support for SBIR/STTR outreach and technical assistance is important.

FAST requires legislative changes, however. The program needs to be reauthorized and should be given an authorization and appropriation that enables larger FAST awards. Under the current funding opportunity, awards are capped at $125,000, which is not enough to facilitate a significant impact across a state—particularly not a state that, by definition, is attempting to play catch-up with its peers. Awards of $300,000 seem more appropriate to delivering FAST services.[3] The program would also benefit from allowing SBA to receive more than one application per state. Currently, the FAST statute provides for only one application, which limits the competitive nature of the award and bars otherwise competitive candidates from consideration.

Ideally, FAST would be just one element within a toolbox of support for technology- and innovation-focused new businesses, which require special knowledge of technology transfer opportunities and regulation, market development and customer identification strategies, and structural considerations related to capital access. SBA has developed initiatives to provide some additional support for these businesses. The Growth Accelerator Fund Competition (GAFC) provides a small boost to accelerators around the country—the current funding opportunity provides $50,000 to as many as 60 winners—and the Regional Innovation Clusters program (RIC) provides sector-specific support. Unfortunately, neither initiative is currently authorized, leading to much uncertainty for potential applicants.

RIC’s model of funding organizations that have expertise in a specific region and industry is particularly valuable for technology development. Each region has its own innovation strengths and weaknesses, and an organization within the area is often best-equipped to provide business assistance for maximizing its regional opportunities. The sector-specific approach is effective for new companies with a business-to-business sales model, which can greatly benefit from early introductions to key industry stakeholders, as well as in sectors with unique structural concerns that require expertise, such as energy’s regulatory environment. Indeed, RIC is facilitating regional growth, such as Milwaukee seeing more than 100 pilot demonstrations and the formation of six new companies as part of a local, water-focused initiative, or northwest Arkansas experiencing 97 new products/services launched with more than $77 million in private capital invested.

While FAST, GAFC and RIC provide targeted support for technology- and innovation-focused companies, these efforts do not provide adequate scale relative to the range of prospective businesses that could benefit from assistance. In total, these programs receive only about $9 million in annual appropriations. For comparison, consider the level of investment in SBA’s flagship innovation-focused programs: $3 billion for SBIR/STTR and $2.5 billion-$4 billion per year for the Small Business Investment Company program (SBIC). SBIR/STTR is primarily for technical development of an innovation, while SBIC’s primary activity is funding for companies at stages beyond venture capital. A significant gap exists between the business stages served by these two SBA programs, and yet funding for FAST, GAFC and RIC, which benefit companies in this gap, is just 0.15 percent of what is spent by the flagship programs to assist companies at either end of the gap.

The committee should test a new program to provide support to companies looking to bridge SBIR/STTR and SBIC that provides substantial assistance related to scaling sales and operations while attracting initial capital. Ideally, this program will leverage state- and local-level organizations that have demonstrable expertise in commercialization assistance, as well as connections to early-stage capital. Such a program, if operated at adequate scale, will be able to assist more companies in making a successful transition from the technology development stage to commercial success. An alternative approach would be to fund FAST, GAFC and RIC with a substantially higher appropriation. While this would be an improvement on the current situation, a new program instead provides the opportunity for entrepreneurs to receive one-stop technology and business support at once and is therefore the more complete solution.

Once again, we appreciate the committee’s attention to reauthorizing the SBA’s innovation programs. Better policies and greater investment in technology commercialization can yield a greater return on our research and development investment. SSTI and our members stand ready to work with you and the U.S. Senate Committee on Small Business and Entrepreneurship throughout this process.




[1] National Academies of Sciences, Engineering, and Medicine. (2016). Capitalizing on Science, Technology & Innovation: An Assessment of the Small Business Research Program (Phase II). Washington, DC: National Academy of Sciences. Available: http://sites.nationalacademies.org/PGA/step/sbir/

[3] We recognize that SBA is providing awards of $125,000 in an attempt to balance appropriations of $3 million—far less than the program’s original $10 million authorization level—against attempting to keep as many states as possible engaged in the program.

 

sba, congress, sbir, policy recommendations