SBIR: This acronym can spell success; The federal grants - totaling $45M in N.C. - can be the difference

BYLINE: Leo John

DURHAM - David Knowles points to a flat screen monitor where a grainy simulation of a flood enveloping Asheville is slowly taking shape.

Knowles, director of economic development at the Renaissance Computing Institute, worries that such a disaster soon could hit the state.

RENCI wants to offer its simulation technology to local governments so they can better manage urban development. But the Chapel Hill nonprofit needs funds to fine-tune the technology. To that end, Knowles on May 1 set up shop at the Sheraton Imperial Hotel.

He was hoping to find a partner among the 550 registrants from 45 states at the 2007 National Small Business Innovation Research and the Small Business Technology Transfer Conference, one of the U.S. Small Business Administration's best-attended educational seminars.

By mid-day, Knowles had four leads - partners that may join RENCI to seek a research grant, potentially worth hundreds of thousands of dollars. "I've made a few contacts," he said optimistically.

RENCI is one of an increasing number of North Carolina businesses and organizations that are turning to the SBIR and SBTR grants in search of early-stage funds.

In 2006, SBIR grants to North Carolina outfits exceeded $45 million compared to the $10 million or so garnered by companies six years ago, says John Ujvari, who heads the Small Business & Technology Development Center in Chapel Hill.

Awarded in three phases, $2 billion worth of such grants are available to companies with fewer than 500 employees performing early-stage research in novel and often risky fields.

Embrex's poultry vaccine technology, Trimeris' AIDS treatment Fuzeon, some of Cree's light-emitting diode technology in the early 1990s and Targacept's drugs all were kicked off with the help of SBIR money.

In the past few years, companies have begun turning to agencies other than the National Institutes of Health, traditionally North Carolina's largest source of SBIR funds.

NIH funds made up only half of the SBIR money garnered by in-state companies in 2006, down from 70 percent a few years ago. Grants from the Department of Defense are on the uptick, says Ujvari.

21st Century Systems Inc., which goes by the shortened 21CSI, knows all about squeezing money out of the Pentagon. The Omaha, Neb., company has won 47 Phase I grants, 26 Phase II grants and about 30 Phase III contracts, commercial contracts based on SBIR-funded work. So successful is 21CSI in attracting funds, the 150-employee outfit is splashed on DoD marketing materials.

"You have to realize SBIRs are a long-term process," says Jeff Hicks, president and CEO of 21CSI. The company has parlayed security and emergency management systems to attract big dollar grants from the government.

For some companies, SBIR funds constitute a more important element - a lifeline.

Executives at Inner Optic Technologies believe their visual aid technology offers surgeons a more efficient way to perform risky procedures. The University of North Carolina at Chapel Hill spinoff credits about $800,000 in SBIR funds for getting the company off the ground.

"Absolutely, 100 percent. It got us going," says Kurtis Keller, president of InnerOptic.

Now, change may be in the works. Thousands of small business owners nationwide are waiting to see what Congress does in 2008, when the legislation that established the SBIR program comes up for renewal.

Edsel Brown, assistant administrator of the SBIR program in Washington, D.C., says he hopes the program will be fully funded.