**NATIONAL SCIENCE FOUNDATION**

**ARLINGTON, VA 22230**

**Engineering Directorate**

**Division of Design, Manufacture & Industrial Innovation**

**Advisory Committee for**

**Small Business Innovation Research (SBIR) and**

**Small Business Technology Transfer (STTR)**

**Programs**

**Meeting Minutes**

**8 January 2003**

**Birmingham, AL**

**A. INTRODUCTION**

The National Science Foundation (NSF) Advisory Committee (AdComm) for
the Small Business Innovation Research (SBIR) and Small Business
Technology Transfer (STTR) Programs met on 8 Jan 2003 at the Sheraton
Birmingham Hotel, Birmingham, AL. The meeting was held during the 2003
NSF Design, Service and Manufacturing Grantees and Research Conference
6-9 Jan 2003 at the same location (called hereafter DMII Conference).

The meeting commenced at 2:00 PM and ended at approximately 5:00 PM.

Advisory Committee members in attendance were:

Dr. Chris Busch (Chairman)

Ms. Penny K. Pickett

Mr. Milton Stewart (with Joan Stewart)

Dr. E. Jennings Taylor

Mr. Tyrone Taylor

Dr. Meg Wilson

Dr. Jose Zayas-Castro

Advisory Committee members absent:

Dr. Sudhir Bhagwan

Dr. Robert Norwood

Ms. RoseAnn B. Rosenthal

Dr. David B. Spencer

Mr. Maurice Swinton

NSF representatives attending the meeting were:

Dr. Warren DeVries, Director, Division of Design, Manufacture and
Industrial Innovation

Dr. Joe Hennessey, Senior Advisor, Industrial Innovation

Dr. Kesh Narayanan, Director, Industrial Innovation

**B. NSF RESPONSE TO 18-19 JUN 2002 ADCOMM MEETING:**

> **COMMENTS AND RECOMMENDATIONS**

Joe Hennessey and Kesh Narayanan reviewed actions taken by the NSF
SBIR/STTR Program Office in response to comments and recommendations
made by the AdComm at the 18-19 Jun 2002 meeting. Their comments and
related AdComm comments and recommendations at the 8 Jan 2003 meeting
are summarized below. The numbered items below correspond to those in
the report from the AdComm meeting on 18-19 Jun 2002.

**1. Phase 1 Proposal Review Process**

Joe Hennessey summarized the new policy that limits the number of Phase
1 proposals that individual small businesses including their
subsidiaries may submit to NSF to 4 per solicitation (SBIR and STTR
submissions combined). This policy was announced at the SBIR session of
the DMII Conference on Monday morning, 6 Jan 2003. Hennessey emphasized
that the measure was of submissions, and that withdrawn proposals would
count toward the limit of 4.

The NSF SBIR/STTR Program Office is planning to evaluate a pilot
screening system in June on a selected sample of Phase 1 proposals. In
the first trial, the same proposals will also go through the normal NSF
review process in parallel. If both processes yield essentially the same
evaluations, the program will seek NSF approval to use such a screening
process to reduce the number of Phase I proposals that are submitted to
full panel review by about 50% while still providing at lease 3 reviews
for each submitted proposal.

**2. State Partnerships and Outreach**

Meg Wilson said that she was working with RoseAnn Rosenthal toward
recommendations on state partnerships and outreach as agreed at the Jun
2002 AdComm meeting.

Kesh Narayanan suggested existing industries in need of (or with
opportunities for) technology insertion are good candidates for SBIR
competition. He cited Wyoming Sawmills (NSF Phase 1, 2 and 2B winner) as
an example.

**3. Matchmaker**

Kesh Narayanan reviewed the status of Matchmaker. He reported that 18
investors and 6 small businesses currently are signed up. Narayanan said
that NSF SBIR Program Managers will promote Matchmaker with appropriate
Phase 2 winners in their respective award portfolios. The inclusion of
strategic partners in Matchmaker is still planned.

Several participants in the meeting cited the lack of awareness of the
SBIR Program among investors and industry. Kesh Narayanan discussed the
need to get industry people engaged with the NSF SBIR Program and
Matchmaker. He reviewed his promotion of Matchmaker at investor forums
such as those sponsored by the National Association of Seed and Venture
Funds (NASVF), as well as with other groups such as the Industrial
Research Institute (IRI).

**4. Phase 2 and 2B Submissions**

Joe Hennessey said that the Phase 2 \"Fund with Revisions\" procedure
has been implemented. He said that 8-12 Phase 2 proposals out of 95 were
sent back to the proposing small businesses for revision in the last
round.

Hennessey then reviewed current and planned Phase 2B procedures. He
announced at the SBIR session of the DMII Conference that two annual
closing dates for Phase 2B submissions have been established (March and
November) as recommended by the AdComm at the Jun 2002 meeting. However,
each proposal may only be submitted once. He noted that half of the
Phase 2B funding is disbursed at the time the Phase 2B supplement is
granted, and the balance funded 6 months later. In addition, he noted
that the Phase 2 funding retention is held at NSF until all Phase 2 and
2B reporting and other deliverable requirements are met.

Hennessey noted the importance of maintaining the integrity of Phase 2B
procedures to enable the Program to continue. Therefore, care is being
taken to insure proper procedures are followed in granting Phase 2B
supplements.

**5. Stage-gating Phase 2 Awards**

Joe Hennessey said that controls are now in place at the Principal
Investigator level to insure that reporting and other deliverable
requirements are up to date on current or previous grants before new
awards are granted. NSF will look into implementing the same at the firm
level.

Hennessey said that NSF has decided that formal stage-gating of Phase 2
funding as recommended by the AdComm at the Jun 2002 meeting was not
feasible since NSF awards are grants and not contracts.

**6. Commercialization Successes and Measurement**

Ritchie Coryell presented the results of his commercialization success
evaluation at the SBIR session of the DMII Conference, and Joe Hennessey
reviewed these results in more detail at the AdComm meeting 8 Jan 2003.
The period of the evaluation was from 1996-98 and was carried out by
telephone and email communications with awardees. The summary of the
results is as follows:

> Successful: 34%
>
> Tentatively Successful 15%
>
> Unsuccessful: 51%

Hennessey noted that these results were consistent with recent studies
performed by NASA on its SBIR award portfolio.

Hennessey summarized plans for continuing the commercialization
measurements under the direction of Ritchie Coryell.

Hennessey said NSF is developing the capability to track compliance
annually with the 5-year (after completion of the Phase 2 project)
commercialization reporting requirement. When completed, non-compliant
small businesses will be ineligible for further awards

Hennessey and Narayanan reviewed the status of the ongoing National
Research Council (NRC) study of the SBIR Program. The study is funded by
the five largest SBIR agencies (DOD, NIH, DOE, NASA and NSF). Ritchie
Coryell is the NSF point of contact for this study. BRTRC has been
retained by NRC to carry out details of the study. BRTRC is now
preparing a questionnaire to be distributed to SBIR winners for data
input to the study. After a somewhat turbulent start, Hennessey and
Narayanan are now satisfied that the NRC project is progressing well.

Hennessey and Narayanan told the AdComm that NRC has solicited input
from the SBIR agencies on suggestions for improving the SBIR Program.
Hence, the AdComm was encouraged to submit to NSF suggested improvements
to the SBIR Program.

**7. Commercialization Planning for Phase 2**

Hennessey reviewed the current activity to support Commercialization
Planning in Phase 2 proposals. He noted that an RFP for
Commercialization Planning contractor will be \"going out soon\" from
NSF. The current contractor is Dawnbreaker (Jenny Servo).

Hennessey said that the success ratio of Phase 2 proposals submitted
with and without Commercialization Planning support (from Dawnbreaker)
was about the same in the most recent competitions. However, the overall
quality of the Commercialization Plans submitted has improved
significantly compared to a few years ago.

Kesh Narayanan discussed the need for more consistent Phase 2 proposal
Commercialization Plan presentations for required and planned funding,
and for revenue projections. He suggested a \"template\" that would
identify the numbers desired. The AdComm discussed with Hennessey and
Narayanan options for conveying the requirements for funding and revenue
information desired. After the discussion, the AdComm recommended that
the instructions for the Commercialization Plan preparation include
wording that specified in adequate detail the funding and revenue
information required, rather than using a template. The instructions
should include the requirement that assumptions used in preparing the
funding and revenue data be included.

The AdComm believed a template would lead to a less thoughtful \"filling
in the blank\" approach, while specifying the requirements in words
would allow more flexibility for the small businesses in conveying the
required information.

**8. Proposal Reviewers**

Joe Hennessey stated that adequate reviewers were available for SBIR
proposals. At the same time, he said NSF was always interested in
identifying more qualified reviewers. Each NSF SBIR Program Managers
maintains a reviewer data bases that they call on in forming their
panels.

Hennessey addressed the issue of commercial reviewers in Phase 1 that
the AdComm recommended in its report from the Jun 2002 meeting.
Hennessey said NSF planned to continue the Phase 1 reviewer process as
before, but with more emphasis on Criterion 2 (broader impacts).

Evaluation of proposal reviewer performance now is done by individual
Program Managers. Hennessey said that interactive panels made possible
by FastLane promote online networking capability now that induces \"peer
pressure\" resulting in better reviewer performance.

Several AdComm members offered assistance in identifying additional
reviewers, especially commercial/business reviewers.

**9. Homeland Security Focus**

Joe Hennessey said that Homeland Security research will continue to be
integrated into the current four broad area topics.

**10. Administrative Resources**

Joe Hennessey reported that covering travel expenses was not a serious
issue at this time, and that the primary limitation is Program Manager
time.

The NSF SBIR Program Office continues to encourage SBIR winners to
convey their \"success stories\" to NSF Office of Legislative and Public
Affairs (OLPA) as a means of promoting the NSF SBIR Program. An email
account \<tellus@nsf.gov\> has been established to capture NSF success
stories including those of SBIR winners.

**11. Clarification of Allowable Costs**

This issue was not discussed at the AdComm meeting.

**C. 2003 NSF DESIGN, SERVICE AND MANUFACTURING GRANTEES AND RESEARCH
CONFERENCE: COMMENTS AND RECOMMENDATIONS**

All AdComm members present had high praise for the DMII Conference that
brought together NSF SBIR/STTR Phase 2 and 2B winners with DMII academic
grantees. Feedback from SBIR winners to AdComm members (mainly at the
poster sessions) indicated the SBIR winners also placed high value on
the conference. The DMII conference sessions, poster session
interactions with other SBIR winners and academic grantees, and other
networking opportunities all were cited by SBIR winners present as
valuable experiences.

Several AdComm members noted that SBIR winner poster sessions focused
primarily on technology, and relatively little on commercialization
issues. AdComm member E. Jennings Taylor checked all SBIR posters and
reported to the AdComm the following compilation regarding poster
emphasis on commercialization:

> No discussion of commercialization, markets and/or IP 69
>
> (simply listing commercial applications not counted)
>
> Some discussion of commercialization, markets and/or IP 26
>
> A lot of discussion of commercialization, markets and/or IP
> [8]{.underline}

Total 103

AdComm member discussions with SBIR winners at the poster sessions
revealed that little guidance was given about the content of their
posters. The AdComm recommends that more guidance on poster content
(including relative importance of technology and commercialization
plans) be provided participants for the next DMII Conference.

There was discussion about alternate configurations for the DMII
meeting. One option offered was combining the DMII Conference with a
National SBIR Conference. However, the consensus was that this would
sacrifice substantial progress made over the past few years in
developing relationships between DMII SBIR winners and academic
grantees.

Another meeting option discussed was including Phase 1 winners in the
DMII Conference. But the consensus was that this would lead to a
conference that was too large, and participants with interests and needs
that were too broad for a single event. The AdComm meeting participants
thought that this would result in less effective networking and
learning.

**D. MODIFIED PHASE 2B PROGRAM: COMMENTS AND RECOMMENDATIONS**

Kesh Narayanan outlined a plan under consideration by NSF to modify the
current Phase 2B Program that is a supplement to Phase 2 grants.
Currently, Phase 2B matches \$0.50 (NSF) for every \$1.00 of Phase 2B
funding provided by an eligible third party. NSF provides from a minimum
of \$50 K up to a maximum of \$250 K for each Phase 2B supplement. The
supplement extends the Phase 2 grant period for 1 year, and NSF provides
funds at the beginning of the Phase 2B period (50%) and 6 months into
the Phase 2B period (50%).

The modified Phase 2B plan under consideration would increase the
maximum of amount of Phase 2B funding from \$250 K to \$500 K, and
continue the 1:2 match requirement on for all NSF SBIR funds provided.
The period of the Phase 2B also would be extended from 1 year to 2 years
for Phase 2B supplements exceeding \$250K.

Currently, about 50 Phase 2B supplements are awarded annually. In the
modified Phase 2B Program, Narayanan said he would expect about 10 of
these to be for the full \$500 K of NSF match funding. He pointed out
that such a Phase 2 and 2B award would capture \$2 million of total
funding for a \$1 million NSF investment. For the total NSF Phase 2B
Program, the suggested approach would capture approximately \$30 million
of third party funding for approximately \$15 million of NSF investment.

Narayanan said the suggested SBIR Phase 2B modifications would need to
be approved by NSF and SBA before implementation.

Generally, the AdComm was very enthusiastic about the suggestions for a
modified Phase 2B Program. However, some concern was expressed about the
impact of the suggested Phase 2B modifications on NSF SBIR Program
compliance with statutory and SBA Policy Directive provisions.

The AdComm recommended that the NSF SBIR Program explore the feasibility
of implementing the suggested Phase 2B option, and that careful
consideration be given to the statutory and SBA Policy Directive
compliance issue.

**E. CONCLUSION**

At the end of the meeting, the AdComm members present unanimously
praised the innovative approaches and high achievements of the NSF SBIR
and STTR Programs. The meeting closed with an ovation for the Program
leaders and team members, and adjourned at about 5:00 PM.

END OF REPORT