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House Approves SBIR Reauthorization

Mark Marich

On July 8, 2009 the House of Representatives approved H.R. 2965, the Enhancing Small Business Research and Innovation Act of 2009 by a vote of 386-41. This legislation would reauthorize through 2011 the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. The bill also makes changes to these programs, such as increasing the flexibility of the SBIR program by allowing cross-agency awards, permitting applicants to apply directly for Phase II funding, and allowing venture capital-backed small businesses to apply for awards. Finally, the legislation increases early stage (Phase I) grant funding from $100,000 to $250,000 and later stage (Phase II) funding from $750,000 to $2 million.

The overwhelming vote in favor of the bill comes to a surprise to opponents who strongly denounce that the bill would let venture capitalists crowd out entrepreneurial firms who do not benefit from the same private equity investment. The legislation would allow VC-backed start-ups to compete for SBIR and STTR grants if no more than 50 percent of the firm is owned by one venture firm and its employees are not a majority of the small firm's board. Since 2003, venture-backed firms have not been eligible to compete for these grants. In this regard, House Science Technology and Innovation Subcommittee Chairman David Wu, D-Ore., said that “the National Academies recently released a report stating that venture capital-backed companies are important and do not crowd out other small businesses.  The goal of SBIR is to encourage innovation; it is time we fix the administrative ruling of a single judge and support more innovative small businesses.”

The Senate Small Business Committee passed a similar measure last month, S. 1233, but this companion legislation would reauthorize SBIR and STTR through 2023 and would increase early stage funding to $150,000 and later stage funding to $1 million. In terms of the VC eligibility, this bill would let the National Institutes of Health (NIH) award up to 18 percent of its SBIR dollars to start ups majority-owned and controlled by multiple venture firms, while the remaining agencies managing SBIR funds could apply 8 percent of SBIR grant money to those firms.

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