SBIR Debate Rages On…

Last week I gave a talk to the New England Innovation Alliance (NEIA), a passionate group of CEO’s and other senior executives from a number of small companies throughout New England. These companies represented important sectors in homeland defense, alternative energy, medical technologies and education. It was a very impressive group of executives – so imagine my disappointment to learn that very few of them needed VC’s.

You see the discussion was around non-dilutive funding and the important role of Small Business Innovation Research (SBIR) grants – and that for many of these small businesses, being able to access these grants is the lifeblood of their companies. There was much common ground in the discussion: preserving the SBIR programs are essential to ensuring continued funding for many innovative companies. But there also was much debate around how much of these grants VC-backed companies should be able to access.

There are somewhat conflicting bills meandering through the House and Senate right now – although observers believe that a compromise will be finally forthcoming this fall. Staggeringly this debate has been going on for over three years – which is both irresponsible of our regulators and has caused considerable uncertainty for hundreds of companies.

The debate is a complex one and revolves around who is eligible for the grants, the size of the grants, and how long these programs should last – all very important issues. At the core many executives feel VC-backed companies enjoy certain advantages which create an unlevel playing field, and therefore, VC-backed companies should be limited or precluded from receiving these grants. Naturally I struggled to see how an entrepreneur decides to fund his/her business should impact that persons ability to receive SBIR grants – but we were careful to keep the debate civil! I also was clear with the NEIA members that VC’s don’t spend meaningful time obsessing about how our portfolio companies should be securing these grants; it is far more productive to focus on hitting milestones which will allow the company to raise far more venture capital than SBIR grants.

We did agree that these grants were meant to be translational in nature – that is, to support small businesses and entrepreneurs to take the first step in getting technology out of the lab and into the marketplace. These grants were not designed for the large multi-national corporations to enjoy. The strength of the SBIR program frankly creates a pipeline of compelling investment opportunities for VC’s.

Stay tuned for the final legislation. Many companies will be impacted in profound ways.

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