small business

New Model for Funding Support to Small Businesses Passes Tennessee Legislature

After near unanimous passing in both chambers of the state legislature, the "Tennessee Small Business Investment Company Credit Act" was sent this week to Gov. Phil Bredesen for his signature. The legislation, designed to create a pool of at least $84 million in capital, utilizes a competitive process to select several venture capital funds to make direct investments in small business headquartered in Tennessee. These venture capital funds can be for-profit or non-profit partnerships, corporations, trusts, or limited liability companies.

Useful Stats: U.S. Industrial R&D Performed per State by Company Size: 2004

Successful small technology businesses serve as integral components of a robust innovation-based economy. The novel products and services brought to market are often the result of these companies' R&D efforts. As a result, nearly every state has programs and policies in place to support the growth of small tech firms.

A Matter of Scale: Florida Governor Outlines "Small" Business Stimulus Package

Facing a $2.3 billion deficit in FY 2010, Florida Gov. Charlie Crist has proposed a new financing program to promote small business growth through the current financial crisis. Calling it an Economic Stimulus Plan, the governors.'s proposal will target small Florida-based companies with high-growth potential through direct loans and other support services. By focusing on small businesses, the state can target companies with good prospects for growth with a modest investment of taxpayer dollars, according to the press release accompanying the announcement. The price tag? Only $10 million.

Governor Outlines $12M Economic Stimulus Plan for Colorado

Gov. Bill Ritter announced his administration's plan to inject $12 million into initiatives that promote job training, provide small businesses with access to capital, and invest in the state's New Energy Economy and bioscience sectors.

Useful Stats: SBIR Awards, Proposals by State, FY 2007

Compiling award and proposal statistics by state for fiscal year 2007, SSTI finds the 10 states with the most awards in FY 2007 were California (1201), Massachusetts (731), Maryland (342), Virginia (322), New York (297), Texas (269), Colorado (254), Ohio (240), Pennsylvania (211) and Washington (160). Compared to the top states for FY06, Maryland moved into the third spot from sixth last year, pushing Virginia to fourth place. New York climbed from eighth place to fifth place, and Texas, Colorado and Ohio each fell from their position last year.
SSTI has prepared a table showing FY07 Phase I SBIR data for all 50 states, Puerto Rico, and the District of Columbia. Statistics include awards, proposals and award-to-proposal conversion rates for nine of the 12 participating agencies (the Environmental Protection Agency, the Department of Education and the Commerce Department's National Oceanic and Atmospheric Administration declined to provide proposal statistics). The table is available at:
SSTI’s FY01-07 SBIR statistics provide seven years of data to evaluate award, proposal and conversion trends for most agencies and comparable states. Tables containing data for fiscal years 2001-2006 are available at:

Wholly New SBIR Program Passes House, 368-43

To paraphrase an old automobile ad campaign, the SBIR program reauthorized for two years by the U.S. House of Representatives on Wednesday is not your father’s SBIR program as it was created and sustained for the past 25 years. Nor would it be the same, smaller STTR program if the bill becomes law.
H.R. 5819 means bigger awards, but fewer awards. It means more flexibility as to when research projects can enter the SBIR/STTR process. It clarifies and expands eligibility to include companies owned by venture capital firms. It opens up significant subcontracting opportunities. It has, for the first time, requirements to give preferences in SBIR/STTR awards to companies based on geographic and demographic considerations.
Also reauthorized in the bill is a dramatically changed Federal and State Technology Partnership (FAST). FAST would make two-year matching grants of up to $250,000 to support state SBIR/STTR outreach and proposal assistance. An amendment introduced by Rep Carney (R-PA) that was passed by voice vote, requires the Small Business Administration (SBA) to give preference in making FAST awards to proposals involving Small Business Development Centers that are certified by the SBA to assist technology companies (SBTDCs).
Whether or not the program is improved or impaired by all of the proposed changes is a matter of debate among members of Congress, the broader SBIR community, and other entities serving as champions and opponents on specific elements of the bill. Whether it means more innovation or less remains to be seen over the two years of its authorization.
Regardless of one’s opinion of the changes, SSTI believes the result, if H.R. 5819 in its current form is also approved by the Senate and signed by the president, should lead state and local TBED organizations to reassess and revise their strategies to assist prospective SBIR and STTR applicants.
Bigger SBIR/STTR Awards
H.R. 5819, as amended and passed by the House, loosens many long-standing structural elements of the SBIR program and its award process. First, H.R. 5819 triples the sizes of SBIR and STTR Phase I and Phase II awards to $300,000 and $2.2 million, respectively. This marks the first official increase in the award sizes in 15 years, although the National Institutes of Health (NIH) and components of the Department of Defense have exceeded the limits on some individual awards for several years.
The bill also requires agencies to issue at least two solicitations for proposals each year.
Larger award sizes and more solicitation cycles should make the program attractive to more companies and researchers, potentially increasing the number of SBIR and STTR applications submitted and demand for state Phase 0 grants to develop proposals. 
Drastic Reduction in Total Number of Awards
The bill also will result in far fewer awards – perhaps less than 40 percent of the current number of awards – since the House also turned down an attempt to increase the 2.5 percent set-aside requirement that funds the individual federal agencies’ SBIR programs and the 0.5 percent STTR set-aside.
Opposition to the larger pools of SBIR/STTR funding was raised by NIH and several associations serving universities, medical research hospitals and related institutions. Rep. Ehlers (R-MI) amendment to eliminate proposed increases of 0.5 percent for SBIR and 0.1 percent for STTR passed on a voice vote.
A significant drop in the number of awards is likely to create challenges for small businesses that have utilized SBIR awards as seed funding. State Phase 0 awards may then go for naught, unless states also consider developing alternative mechanisms to SBIR for those projects found to be of scientific or technological merit but not funded by the federal agencies. The number of SBIR Phase I proposals should gradually decline as the odds of winning an award become less desirable.
More Flexibility for When Research Projects Enter SBIR/STTR Programs
Both SBIR and STTR program grants have traditionally followed a rigid two-phase cycle. All companies entered the program through short-term Phase I grants for proof-of-concept research. Only Phase I awardees are eligible to compete for the larger, longer-term Phase II grants. That changes dramatically with the House-passed bill. 
H.R. 5819 grants considerable flexibility to the award structure for both STTR and SBIR such that it: 1.) allows companies to enter the program at either Phase I or Phase II; 2.) allows companies to win Phase II awards in an agency different than the one that funded the Phase I;  3.) allows companies to win sequential Phase II awards for the same project; 4.) allows companies to win Phase II awards as quickly as possible when the agency deems appropriate, including at the beginning of the Phase I; and 5.) allows agencies to waive the minimum work requirements for small business concern or research institution participation.
First-ever Requirements to Skew Competition toward Rural Areas, Depressed Areas, Vets and Energy-efficient Companies
For 25 years, SBIR has managed to remain a grant program based entirely on open competition to make award decisions. Over those years, there has been concern about the distribution of awards geographically and demographically. The House heard those concerns and included language in the bill that states, “Federal agencies shall give priority to applications so as to increase the number of SBIR and STTR award recipients from rural areas.’’
In addition, Rep. Boswell (D-IA) and Rep. Sutton (D-OH) introduced an amendment that passed by voice vote and states, “Federal agencies shall give priority to applications from companies located in geographic areas that, as determined by the Administrator, have lost a major source of employment.”
Another amendment introduced by Rep. Sutton and passed on voice vote states, “Federal agencies shall give priority to applications from veterans … so as to increase the number of SBIR and STTR award recipients who are veterans.”
The fourth preference in SBIR/STTR award selection, added by an amendment from Rep. Matheson (D-UT), also applies to FAST recipients. The language requires federal agencies to give priority to applications “from organizations that are making significant contributions towards energy efficiency, including organizations that are making efforts to reduce their carbon footprint or are carbon neutral.”
What’s Next?
Without some form of reauthorization passing before Sept. 30, 2008, the SBIR program expires. The program's reauthorization is uncertain with the White House issuing a veto threat, according to the April 22 Congressional Quarterly Today. CSPAN reported in a voice over during the floor action on SBIR that the White House considers SBIR a tax or budget cut on the R&D budgets of the 11 participating federal agencies.
H.R. 5819 now moves to the Senate for its consideration, where it is likely to move to the Senate Committee on Small Business and Entrepreneurship.
H.R. 5819, as passed, will be available by searching the bill number at:

SBIR Reauthorization: Improving the Impact of FAST: An Editorial

Last week, SSTI reported the draft SBIR Reauthorization bill circulated by the House Small Business Committee in mid-March included language that would reauthorize the Federal & State Technology Partnership (FAST) for two years at its current $10 million level. FAST was created with the 2000 SBIR reauthorization and received appropriations through the Small Business Administration (SBA) for three of the next four years.
In its first iteration between 2000-2004, FAST received mixed reviews. It could be made better through the present reauthorization process. Before that, however, an important and often overlooked point must be made: there is little to no criticism with the underlying concept or mission of FAST to provide financial support to state and local efforts to promote the federal SBIR program and improve the quality of small business participation in SBIR across the country.
That lack of criticism can easily be attributed to the fact that promotion of the opportunities afforded small tech firms through SBIR and the provision of high-quality proposal development assistance does make a difference in the number of competitive proposals received from the geographic area served by the outreach and assistance efforts. In its assessment of the SBIR program, the National Academy of Sciences concluded that despite the small dollar amounts of the FAST awards, the short-lived program did appear to make a difference.
FAST did develop a sizable collection of critics, however, including many grantees. The situation after the first three funding cycles was so dire, in fact, that there was little fight for appropriations in fiscal year 2005 when the Administration did not request more funding. FAST has remained on the books as an unfunded Small Business Administration (SBA) program ever since.
The conclusion: good idea, poorly executed.
In February 2008, SSTI convened conference calls with its core state members to develop suggestions regarding how FAST could be improved. Past criticisms essentially could be divided into two groups: 1.) variable quality of FAST grantee service delivery and performance; and 2.) administrative/oversight issues at SBA. There are easy and affordable ways to address each set of concerns.
In this issue of the Digest, we highlight some recommendations addressing the first group of concerns dealing with grantee quality, including:

House SB Committee Releases Draft SBIR Bill at Hearing; SSTI Testifies

A brief two-year reauthorization, bigger award sizes, VC eligibility clarification, and a $10 million grant program for state/local outreach assistance are included in the draft SBIR reauthorization bill circulated by the House Committee on Small Business Chairwoman Nydia Velazquez during the third hearing on the topic, held March 13.
The SBIR program will sunset Sept. 30, 2008, if reauthorization legislation is not passed by Congress and signed by the president before then.
Bigger Awards, Fewer Winners
The draft legislation doubles the award sizes for both Phase I and Phase II, authorizing awards of $200,000 for Phase I and $1.5 million for Phase II. In addition, the committee draft authorizes agencies to award “sequential Phase II awards” for testing and evaluation of promising technologies. The award sizes have not been increased since 1992, although some agencies have exceeded the current limits, as needed, for particular projects.
Since the bill does not increase the 2.5 percent set aside requirement for SBIR, the result will be fewer awards, thus increasing competition for small businesses and decreasing the number of innovations supported through the program.
Venture Capital eligibility
The most controversial element, as Digest readers following SBIR know, is whether or not small businesses owned by venture capital firms are eligible to compete for SBIR funding. Most of the testimony and questions during this third full Committee hearing focused on the issue. Steven Preston, administrator for the Small Business Administration (SBA), was subpoenaed to participate as the sole member of the first panel of the hearing to present the rationale for SBA’s current eligibility interpretation. 
Preston expressed concern with the draft language, stating in his written testimony that “the committee print offers too broad a definitional change to the affiliation standards.” SBA is concerned about carryover of the redefinition of SBIR eligibility into all small business programs, potentially harming them inadvertently.
In addition, in his testimony, Preston illustrated the problem that arises with definitions of venture capital-owned companies “which includes patent and licensing organizations affiliated with institutions of higher education.” He expressed an interest in working with the committee to clarify the language.
The alternate view on the VC eligibility issue was the dominant topic of the testimonies of the first three witnesses during the second panel: Jim Greenwood, president of BIO; Mark Heesen, president of the National Venture Capital Association; and Mark Leahey, executive director of the Medical Device Manufacturers Association. The VC issue has been most prominently discussed in the industries associated with life science research and biomedical development.
All three witnesses appreciated the committee’s commitment to addressing the eligibility issue in the draft language. Heesen outlined how SBA’s definition was being applied in practice, taking some exception to Preston’s explanation. He also referenced the recent SBIR assessment by the National Academy of Sciences, as he described the formerly complementary relationship of SBIR and VC, stating “the NAS report found that there are useful synergies between venture capital investment and SBIR funding in terms of selecting the most promising companies.”
Greenwood and Leahey explained the specific impact of SBA’s current definition on the biotech and medical device communities, respectively. Both witnesses cited the steep three-year decline in SBIR grant proposals to NIH as evidence of how SBA’s definition is negatively affecting biomedical research at its earliest stages. NIH applications declined 11.9 percent in 2005, by 14.6 percent in 2006, and by 21 percent in 2007; SBA’s Final rule on eligibility became effective Jan. 3, 2005. The current definition is slowing U.S. health-related innovation rather than increasing it, they contend.
Reauthorization of FAST
Authorized for the first time in the current expiring SBIR legislation and funded for only three years, the Federal and State Technology Partnership (FAST) is included in the committee draft bill at the same authorization level of $10 million. The SBA-managed program would provide grants of up to $250,000 per year to state and multistate initiatives dedicated to broadening SBIR’s reach geographically and/or increasing SBIR participation among women and minority small tech firms. Grants, limited to one per state, would have to be matched on a one-to-one basis by nonfederal sources and would be for performance periods of up to three years to allow greater continuity for states in planning, staffing and delivering services to client companies. 
Reauthorization and improvement of FAST and explaining the important role state and local TBED efforts play in nurturing SBIR participation and innovation were the central points of the written testimony submitted to the hearing by the fourth panelist, Mark Skinner, SSTI's vice president.
“SBIR over the past 25 years has evolved into a state-federal-industry partnership in ways that I do not believe are fully realized by the federal agencies and perhaps even Congress,” Skinner wrote. The testimony explains state and local technology-based programs – now present in nearly every state – have become the de facto marketing and outreach arm of the federal program, filter potential applicants for SBIR appropriateness, and move SBIR technologies closer to commercialization by providing linkages to angel and venture capital groups, production partners and, in some cases, direct financial assistance toward Phase III.
The fifth and final witness on the second panel of the hearing was Dr. Charles Matthews, professor of entrepreneurship and strategic management at the University of Cincinnati. Dr. Matthews emphasized the importance of the federal SBIR program in creating a leveraged economic impact on regional economies, providing specific examples of the integral relationship that exists between the public-private TBED initiatives of southwest Ohio, SBIR funding, and the region’s small technology firms.
In addition to SSTI’s support for FAST reauthorization, Greenwood stated in his oral testimony that BIO supported FAST. Preston, when asked directly by Committee Chairwoman Velazquez whether or not the SBA supported FAST reauthorization, gave a qualified endorsement, adding that he wanted to talk with his staff more about the particulars of the program as included in the reauthorization draft.
Same Time Next Year?
Committee markup for the draft bill had not been scheduled at the time of the hearing, but the process is anticipated to pick up speed, now that a draft has been prepared. After clearing the House Committee on Small Business, SBIR reauthorization moves to the House Committee on Science, which shares SBIR oversight.
The current draft only extends the SBIR program for two years – the shortest extension in the program’s 25 year history. As a result, the next reauthorization process would need to begin next spring to avoid the current pressures to renew the program prior to its pending sunset in six short months.
The written testimonies of all six witnesses for the hearing are available at:
The draft SBIR reauthorization legislation is available at:

Wage Structure in Italian Manufacturing Firms

January 01, 2007

This paper examines the relationship between the structure of small manufacturing firms and the wages they pay.

Getting the Most Bang for Your Buck: An Analysis of States Relative Efficiencies in Promoting the Birth of Small Firms

January 01, 2007

This SBA paper examines the role state policies and programs play in the rate of business births. The authors conclude that states can be quite influential in this area, and that states with larger populations tend to be more efficient in providing this kind of support.


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