Free Enterprise - The FindLaw Small Business Law Blog

SBIR & Venture Capital Debate Pits House against Senate

Congress is currently attempting to renew the Small Business Innovation Research (SBIR) program, which provides funding to small businesses engaging in specific research and development. At issue is the extent to which businesses backed by large venture capital outfits and institutional investors should be eligible to receive SBIR grants.

As previously discussed, SBIR grants are intended to match small businesses with funding for research and development in line with projects by various government agencies.

The current debate about renewal of the program primarily revolves around two issues:

  • To what extent should venture capital backed companies receive SBIR awards?; and
  • How much should the size of awards be increased (without an increase in total money to be awarded)?

Technically, venture backed small businesses are not excluded from SBIR awards right now. However, the venture company itself must employ fewer than 500 people, and currently this includes employees of the other businesses in which the venture company owns a majority stake.

This pushes many venture companies, particularly the larger ones, out of the SBIR mix, meaning the companies in which they own majority stakes cannot get SBIR awards.

Many small business advocates think this is how it should be -- that giving SBIR awards to venture backed companies would provide them an insurmountable competitive advantage.

It now looks now as if at least a percentage of SBIR awards will go to businesses backed by big venture capital.

The House and Senate will hash out exactly how large the slice will be. The bill passed in the House (HR 2695) opens all SBIR awards up to companies backed by big venture capital, while the curreent Senate bill (S 1223) sets limits. It would allow these companies access to 18% of SBIR grants from the National Institutes of Health, and 8% of grants from the other agencies that awards SBIR grants.

As far as the size of awards, it looks like they will increase.

SBIR grants have two phases. Currently Phase I grants go as high as $100,000 and Phase II as high as $750,000. The House wants to increase this to $250,000 and $2,000,000. The Senate wants a smaller increase to $150,000 and $1,000,000.

However, without a corresponding increase in the total SBIR pot -- this could very well mean larger grants to fewer recipients (including some who already have big venture capital backing).