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Small Business Innovation Clock Goes Tick Tock

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By Neetal Parekh on July 24, 2009 11:05 AM

Congress to Review and Reconcile House and Senate SBIR Bills before July 31st Deadline.

July 31st 2009 is the deadline for Congress to reauthorize the Small Business Innovation Research program (SBIR) and though the Senate and House have nodded bills through, the two bills, at this point, are fraternal versions of each other---not bearing enough similarity to be considered the same piece of legislation.

In Free Enterprise's on-going coverage of the SBIR (see posts published on April 21st, July 9th, and July 14th 2009), we have explored a variety of aspects of the  initiative and are as curious about the role venture-backed companies will ultimately play as much as the next small business innovation enthusiast.  And while we can't call what the results will be when final buzzer sounds, we can give you a few plays to keep a lookout for as the House and Senate begin deliberating the fate of SBIR.

The main line of contention is venture-backed funding.  In the past, SBIR rules have limited the role of venture-funded small business (defined as 500 employees or fewer) to be eligible for a SBIR grant--namely, requiring that a company be majority-owned by individuals, and amended to allow a majority venture firm-owned company to participate only if the venture firm itself is majority-owned by individuals.  

The House version of the bill is decidedly pro-venture capitalist funding.  It delimits the involvement of V.C. funding for companies vying for SBIR consideration.  The House legislation allows a syndicate of the V.C. companies to be a majority-stakeholder in a small business and also raises grant funds from $100,000 in the initial phase to a proposed $250,000 and $750,000 in the two-year follow-up phase to $2 million.  Increasing grant amounts from the same pool of funds effectively means bigger grants for fewer businesses.  The argument is that the millions, even billion, of dollars required to R&D a new pharmaceutical to bring it to market creates a culture in which most viable drug-companies already seek funding elsewhere. 

However, smaller companies independently trying to bring drugs to market are not easily convinced.  They are looking closely to the fate of the Senate's SBIR bill which allows small companies controlled by a V.C. syndicate to vie for up to 18% of SBIR funds apportioned by the National Institutes of Health (NIH) or 8% of grants funds set aside at other agencies.  The Senate's proposed increase on the grant funds amount to a $150,000 award for the first-phase and $1 million in the development phase with room to increase thereafter.

Each of the bills has a handful of other differences including the House bill's inclusion and prioritization of research projects on relevant fields such as renewable energy, rare diseases, mass transit, nanotechnology, and water transport systems and on grant applicants from rural areas, cities with high unemployment, war veteran-owned firms, and companies owned by Native Americans.  Whether these appetizers will ultimately make the House version more palatable remains to be seen, but keep a lookout at headlines next week as Congress tackles the formidable task of reconciling the SBIR proposals.

 

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