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DRIVING JOB GROWTH: SMALL BUSINESS 

INNOVATION AND RESEARCH 

FIELD HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

APRIL 24, 2014 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.fdsys.gov 
(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED THIRTEENTH CONGRESS 

MARIA CANTWELL, Washington, Chairwoman 

JAMES E. RISCH, Idaho, Ranking Member 

CARL LEVIN, Michigan 

MARY L. LANDRIEU, Louisiana 

MARK L. PRYOR, Arkansas 

BENJAMIN L. CARDIN, Maryland 

JEANNE SHAHEEN, New Hampshire 

KAY R. HAGAN, North Carolina 

HEIDI HEITKAMP, North Dakota 

EDWARD J. MARKEY, Massachusetts 

CORY A. BOOKER, New Jersey 

DAVID VITTER, Louisiana 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

TIM SCOTT, South Carolina 

DEB FISCHER, Nebraska 

MICHAEL B. ENZI, Wyoming 

RON JOHNSON, Wisconsin 

JANE CAMPBELL, Democratic Staff Director 

SKIFFINGTON HOLDERNESS, Republican Staff Director 
(III) 

C O N T E N T S 

OPENING STATEMENTS

Page 

Cantwell, Hon. Maria, Chairwoman, and a U.S. Senator from Washington ...... 1 

WITNESSES

Contreras-Sweet, Maria, Administrator, U.S. Small Business Administration, 

Washington, DC ................................................................................................... 5 

Afzal, Rob, Lockheed Martin Aculight, Bothell, WA ............................................ 11 

Barry, Robert, Co-Founder and CEO, Stasys Medical Corporation, Kirkland, 

WA ......................................................................................................................... 15 

Rhoads, Linden, Vice Provost, Center for Commercialization, University of 

Washington, Seattle, WA ..................................................................................... 20 

Brown, Adriane, President and CEO, Intellectual Ventures, Bellevue, WA ...... 26 

Neumann, John, Acting Director, U.S. Government Accountability Office, 

Washington, DC; accompanied by Hilary M. Benedict, Assistant Director, 

U.S. Government Accountability Office, Washington, DC ................................ 33 

Weed, Russ, UE Technologies, Mukilteo, WA ....................................................... 50 

ALPHABETICAL LISTING

Afzal, Rob 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 13 

Barry, Robert 

Testimony .......................................................................................................... 15 

Prepared statement .......................................................................................... 17 

Benedict, Hilary M. 

Biography .......................................................................................................... 49 

Brown, Adriane 

Testimony .......................................................................................................... 26 

Prepared statement .......................................................................................... 28 

Cantwell, Hon. Maria 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 4 

Contreras-Sweet, Maria 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 7 

Neumann, John 

Testimony .......................................................................................................... 33 

Prepared statement .......................................................................................... 35 

Rhoads, Linden 

Testimony .......................................................................................................... 20 

Prepared statement .......................................................................................... 23 

Weed, Russ 

Testimony .......................................................................................................... 50 

Prepared statement .......................................................................................... 52 

(1) 

DRIVING JOB GROWTH: SMALL BUSINESS 

INNOVATION AND RESEARCH 

THURSDAY, APRIL 24, 2014 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Seattle, WA. 

The Committee met, pursuant to notice, at 9:30 a.m., in the 

Microsoft Lakefront Pavilion, Museum of History and Industry 

(MOHAI), Hon. Maria Cantwell, Chairman of the Committee, presiding. 

Present: Senator Cantwell (presiding). 

OPENING STATEMENT OF HON. MARIA CANTWELL, 

CHAIRWOMAN, AND A U.S. SENATOR FROM WASHINGTON 

Chairwoman CANTWELL. Good morning. This is the Small Business and Entrepreneurship Committee hearing entitled Driving 

Job Growth: Small Business Innovation and Research. We have a 

very distinguished panel of witnesses here today, and I thank all 

of them for being here. 

I am very pleased that Administrator Maria Contreras-Sweet, 

the new Administrator of the Small Business Administration, is 

here to join us to participate in this hearing about how innovation 

and job creation is happening in Washington State. 

This hearing, for me, is part of a two-week listening tour around 

Washington State, including a field hearing that we had last week 

in Vancouver, Washington, on access to capital; a contracting and 

innovation discussion in Pasco that was led by the Department of 

Energy on how to get small businesses to be a larger part of the 

small business contracting program; and tomorrow I will be with 

the ranking member of the committee, Senator Risch, in Spokane 

and Idaho to talk about the STEP program, a program administered by the Small Business Administration on small business exports. 

After this hearing, Administrator Sweet and I are going to the 

Oso-Darrington-Arlington SR–530 corridor to talk about disaster 

assistance. And I want everyone in the Puget Sound area in Washington State to know that upon her confirmation, the very first 

thing the administrator said to me is, ‘‘I want to go to the OsoDarrington area and make sure we’re doing everything we can as 

a nation to help that community.’’ 

So I thank you for that and your willingness to be here in Puget 

Sound. 
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When she said she would come and do that, we also thought of 

all the many things that we could ask her to do while she is here. 

But nothing could be more important following the Oso-Darrington 

visit than to talk about the innovation economy and how much the 

perspective of entrepreneurs here can help us shape the direction 

of our country. 

Everyone knows that Seattle is the hub of innovation, and there’s 

no place like right here at MOHAI to look at that innovation. We’re 

here today to talk about how small business integrates the key 

tools to help innovate, in particular, the SBIR program, the Small 

Business Innovation Research Program, that requires that federal 

agencies with large external research and development budgets set 

aside a percentage of that funding specifically for small business. 

That funding is used by these innovators to confront and address 

the challenges facing our nation, anything from medical diagnostic 

tools to advanced polymers for energy research. And this program, 

in 2012, amounted to over $2 billion in investment in small businesses across the United States. 

The Small Business Technology Transfer Program is similar. It 

also focuses on stimulating partnerships between businesses and 

nonprofit institutions. So I’m sure we’ll hear a little bit about that 

today. But when we think about these programs here in the Pacific 

Northwest, you know that we have been successful. 

Beginning with a modest SBIR investment through the Health 

and Human Services Department in the early 1990s to explore 

commercial potential for an electronic toothbrush, Optiva created 

what we all know now as Sonicare. The original six employees 

grew to more than 600, and when it was sold in the year 2000 to 

Philips, annual sales were $175 million. So we can say that the 

SBIR program was a big success. 

Small business and innovation ideas have led to many other successes here in the Northwest. Today, we’re going to hear from two 

of those companies. One is Aculight, which used an SBIR defense 

investment to develop technology to avoid heat-seeking missiles 

and commercialized it and grew a firm of six employees to more 

than 100. And we’re also going to hear from Stasys, a medical device company using SBIR, and UniEnergy Technologies, which 

wants to use SBIR to help facilitate their growth. 

So these opportunities are what has helped us here, along with 

the University of Washington and their Center for Commercialization. So we’re glad they’re here to give us a global perspective on 

that, as well as Intellectual Ventures to give us a larger perspective on what we need to do to further stimulate the innovation 

economy. 

Obviously, we have some challenges we have to face. Today, the 

Government Accountability Office will discuss a recent report 

which sheds light on the fact that eight out of the 11 federal agencies participating in the program didn’t consistently comply with 

the obligations for small business research. In fact, the agency 

found that overall use of the program fell $80 million short of the 

small business investment goal between 2006 and 2011. 

So I know that the administrator and I agree that there’s more 

to be done here to make sure that we are getting research dollars 
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out to help small businesses create new jobs. That will be part of 

our discussion today. 

I know that we have many things to be thankful for. We’re also 

going to hear from businesses who are in the process, or should I 

say want to make sure that the SBIR program works for them as 

well, particularly in the area of energy, which is an access to capital issue for many new job creation activities here in the Puget 

Sound area on clean energy products and services. So we certainly 

take to heart what the Government Accountability Office says 

about making sure all agencies, including the Department of Energy, meet their goals in small business research. 

So with that, I’m going to turn it over to Administrator 

Contreras-Sweet. She’s already had bestowed upon her the advent 

of bringing this great sunshine with her. 

So we’re very glad you’re here, and thank you for coming to the 

Pacific Northwest. 

[The prepared statement of Chairwoman Cantwell follows:] 
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STATEMENT OF MARIA CONTRERAS-SWEET, ADMINISTRATOR, 

U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, DC 

Ms. CONTRERAS-SWEET. Thank you so much. Thank you, Chairman Cantwell, for convening this hearing and for your outstanding 

leadership in the United States Senate, not only for America’s 

innovators but for the great state of Washington and our entire 

country, indeed. When we think and remember and respect the fact 

that one in two of our people work for a small business and two 

out of three new jobs are created by small businesses, we’re delighted that you are now at the helm of the United States Senate 

Committee on Small Business. Congratulations once again. 

And thank you to the good folks at MOHAI. What a beautiful 

site and how appropriate to have this hearing. 

I’m just pleased to be here in the state of Washington. You have 

been a laboratory for how to create high-tech, high-paying jobs of 

the future. From software to aviation to manufacturing, this beautiful evergreen state is showing the world, indeed, what the 21st 

century economic leadership looks like. 

At the SBA, I look forward to working with you to help create 

more success stories like these here in Seattle. But nationwide, 

across every field of innovation, the Small Business Innovation Research Program, along with the STTR programs, have awarded 

145,000 grants totaling more than $35 billion to America’s small 

businesses. In 2012, these programs put over $2.5 billion directly 

into the hands of small businesses. 

SBIR and STTR are true gems, and nowhere is that more evident than here in the great state of Washington. We are pleased 

to report that over the last decade, more than 1,100 small businesses have received 1,800 grants totaling $629 million. Since the 

programs’ inception, Washington’s small businesses have received 

a total of more than $1 billion under these two programs alone to 

spur innovation. 

Additionally, the University of Washington, Washington State 

University, and Gonzaga University have all participated. Since 

1998, small businesses working with these schools, these universities, have received more than 250 STTR grants totaling $70 million. These programs have created many success stories throughout 

the state. 

The SBIR, for example, helped Hummingbird Scientific in Lacey 

become a global leader in the design of electron microscopes. Their 

achievements have helped scientists do amazing work in fields like 

3–D mechanical design, complex circuitry, and software development. They have gone from a four-person team to employing 25 

professionals at their facility in Lacey. 

Just up the road, SBIR supported Micronics in Redmond. This 

company patented new technology that lets health professionals 

perform medical tests on the spot and get results in minutes versus 

having to go to a lab and wait hours. And when we’re talking about 

medical situations, life-altering situations, we know that minutes 

mean life. 

Madam Chairwoman, these are just two of the successes made 

possible by one of the federal government’s most powerful and effective programs. I want to take a moment to thank you again for 

your leadership in passing a six-year reauthorization of the SBIR 
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and STTR programs in 2011. This long-term reauthorization provided certainty and stability for the small business community and 

included a number of improvements to the programs. 

Our work to foster innovation through SBIR and STTR is an important part of SBA’s core mission to ensure that entrepreneurs 

have access to capital, to counseling, and contracting opportunities. 

And, of course, while we don’t wish this on anybody, and we lament 

the grim situation that we’re confronted with here in Oso, we also, 

as you know, provide disaster assistance in times of emergency. 

I’m also focused on exploring new opportunities to expand our exports, because we know that where there is global demand for cutting edge products and opportunities that are made here in Seattle’s high-tech corridor, we want to make sure that you’re able to 

sell them abroad. 

I look forward to this opportunity to listen to you all today. I 

share your strong commitment to innovation, and through SBIR, I 

think we can work more closely together. I look forward to working 

with you to help our high-tech entrepreneurs create excellent jobs, 

high-paying jobs, economic growth, and a better world for all Americans, including you. 

Thank you so much. 

[The prepared statement of Ms. Contreras-Sweet follows:] 
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Chairwoman CANTWELL. Well, thank you, Administrator. 

We will start with our witnesses, and we’re going to just go right 

down the line. So if you’ll introduce yourself along with your testimony, we appreciate it, and we’ll do questions with all of you at 

the end of everyone’s testimony. 

STATEMENT OF ROB AFZAL, LOCKHEED MARTIN ACULIGHT, 

BOTHELL, WA 

Dr. AFZAL. Thank you, Administrator Contreras-Sweet and Senator Cantwell, for inviting me down. 

Chairwoman CANTWELL. You might pull that a little closer. 

Dr. AFZAL. Is that better? 

Chairwoman CANTWELL. Yes. 

Dr. AFZAL. My name is Robert Afzal, and I’m a senior technical 

fellow at Lockheed Martin Aculight Corporation and formerly the 

Vice President of Research and Development at Aculight Corporation in Bothell, Washington. 

In 1994, Aculight Corporation was founded by five scientists 

after being laid off from another company following the fall of the 

Berlin Wall and the end of the Strategic Defense Initiative Program, or at least its reduction in funding. Not wanting to leave the 

beautiful Pacific Northwest, they started a company to focus on research and development on lasers for aerospace and defense but 

with an eye towards one day commercializing their laser technology. 

They started off by doing studies and analysis and slowly but 

surely their business grew as they continued to secure contracts 

from the United States government and from the prime aerospace 

corporations. As they hired more scientists, engineers, and technicians, they secured more contracts and were able to establish development laboratories to build hardware and prototypes to validate their ideas. 

Their core business was creating and generating new ideas in lasers and electro-optics to be demonstrated in experiments and prototypes to serve the United States government and prime contractors. They were able to focus their core laser technology to the applications for infrared counter measures, which is the defeat of 

heat-seeking missiles; 3–D airborne lidar mapping to generate high 

resolution maps for geospatial information systems; and for directed energy lasers for our next generation weapons capability. 

These are still core applications that we are working today. 

The SBIR program played a crucial role in the development of 

Aculight and the development of the technology in two tangible 

ways. First was the SBIR call for topics. This was a way for the 

United States government departments to communicate their needs 

so that small, innovative businesses could bring their ideas forward 

and establish relevancy. 

This method helps ensure the innovative ideas brought forward 

are related to the national need. Second and most importantly, it 

provided the funding to develop the ideas further, and in the cases 

of Phase II and Phase III, funding to demonstrate the ideas in tangible proof of concept demonstrations. 

Although the SBIR Program did not provide sufficient funds to 

fully develop a product for production, it did enable the product to 
12 

be developed to a point where the risk of product development was 

significantly reduced for further investment paths such as equity 

capital or partnerships with larger corporations. That said, at 

Aculight, there were two examples of how SBIR programs led directly to products that were developed and sold to the market. 

First, leveraging an Air Force SBIR for pulse fiber lasers for target identification, Aculight was able to develop and sell a similar 

laser for the airborne laser mapping market. These lasers are sold 

throughout the world and are helping generate foundational data 

for geospatial information systems used today. Second, leveraging 

an SBIR from the Missile Defense Agency, Aculight developed a 

product which is still being sold to universities and research labs 

worldwide for groundbreaking scientific research in the area of 

spectroscopy, including some of the Nobel Prize winning labs. 

As successful as those examples are, as Aculight continued to 

mature its concepts and technology, its targeting for acquisition by 

Lockheed Martin is an even larger measure of its success. In September of 2008, Lockheed Martin acquired Aculight, and now the 

innovative small company has the strength and resources to bring 

those ideas and technology to bear to address our pressing national 

needs. 

We have continued to develop and advance those core technologies, but now have the opportunity to bring them to support 

our warfighters. At that time, Aculight was 85 people and has now 

grown to over 120 locally, and we are continuing to hire. 

Lockheed Martin has brought in many tens of millions of dollars 

in contracts that are feeding the economy for jobs in Washington 

State, but also supporting work at other Lockheed facilities 

throughout the country. Now, as a prime, we are looking back into 

the SBIR program and looking at those new small innovative businesses developing the next generation of solutions that we can one 

day utilize. 

The SBIR program helped enable our growth. It provided a playing field where small innovative companies could respond to national needs and where the marketplace of ideas can bear them 

out. It provides an additional funding pathway that’s not tied to equity investment and, more importantly, has the patience to advance technology with a somewhat longer time scale. 

Thank you very much. 

[The prepared statement of Dr. Afzal follows:] 
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Chairwoman CANTWELL. Thank you very much. 

Mr. Barry. 

STATEMENT OF ROBERT BARRY, CO-FOUNDER AND CEO, 

STASYS MEDICAL CORPORATION, KIRKLAND, WA 

Mr. BARRY. Thank you for the opportunity to discuss SBIR and 

how it has helped companies like Stasys Medical. My name is Robert Barry. I’m the Co-Founder and CEO of Stasys Medical Corporation. I am also an entrepreneur in residence at the University of 

Washington. I have 25-plus years of medical device experience. I’ve 

worked for large companies like Pfizer and Boston Scientific, and 

I’ve also started three medical device companies here in the Seattle 

area. 

I do have experience with SBIR grants, as well as private capital 

and seed funding, angel funding, and venture capital funding, most 

recently founding Stasys Medical Corporation, which was a spinout 

from the University of Washington, with two other co-founders, Dr. 

Nathan White, who is a trauma physician at Harborview here in 

Seattle, and Dr. Nate Sniadecki, who is a professor of mechanical 

engineering at the University of Washington. 

The company was started on a clinical need, and that clinical 

need was brought to us by Dr. Nathan White, who works in the 

emergency room at Harborview and was frustrated by the fact that 

as patients showed up who were bleeding, it was difficult to determine if they had clot dysfunction, and, if so, why. There are tests 

that determine clot dysfunction, but those tests are lab-based tests, 

and they take quite a while, up to a half an hour to obtain. We all 

know that in trauma, 30 minutes is too long. 

In working with Professor Nate Sniadecki at the University of 

Washington, Nate White was able to basically develop technology, 

microfluidic and micropost technology, that enabled measuring clot 

dysfunction within minutes. We are currently working on that 

technology. I would like to say that in the very beginning, as this 

technology was being developed, the Center for Commercialization, 

along with Coulter Foundation and the Life Sciences Discovery 

Fund, helped to support the initial development of the base technology. 

Once that was done, we then formed a company, and that’s when 

I became involved. Looking at the business opportunity, as I did 

due diligence on whether or not this was a viable commercial entity, there were several things that really struck me about this particular opportunity. It’s a 510(k), which, if you’re familiar with 

510(k), means that the regulatory path is rather short. The reimbursement is in place with the current lab-based tests. So the time 

to get to revenue is also fairly short. 

And, finally, the technology did not require a tremendous amount 

of capital, and yet there is the opportunity for several hundred million dollars per year of revenue. So it’s a good business opportunity, 

and I think a high-growth potential for the Seattle community. 

We have received an SBIR grant, Phase I NSF grant, for 

$150,000. We received that in January of 2014. We are currently 

applying for a Phase II grant for approximately $1 million and are 

hoping to obtain that. We think that the SBIR grant is crucial for 

us, and I say that having been in this industry for a long time and 
16 

having seen the decline in private capital wanting to invest in early 

medical device companies. 

In fact, in the last five years, there’s been over a 50 percent reduction in private capital for early medical device companies. That 

is why I feel that now, more than ever, the SBIR grants can help 

to fill that gap, to de-risk companies and help them develop to the 

point where then they can obtain the private capital in the Series 

A round, which then helps to really launch the project and the company quickly forward to become a provider of valuable jobs for the 

region. 

Thank you. 

[The prepared statement of Mr. Barry follows:] 
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Chairwoman CANTWELL. Thank you very much. 

Linden, welcome and thank you for your work at the university. 

STATEMENT OF LINDEN RHOADS, VICE PROVOST, CENTER 

FOR COMMERCIALIZATION, UNIVERSITY OF WASHINGTON, 

SEATTLE, WA 

Ms. RHOADS. Thank you. My name is Linden Rhoads, and I 

would like to thank Senator Cantwell and Ms. Contreras-Sweet for 

the opportunity to present today on behalf of the University of 

Washington. 

I spent two decades as a technology entrepreneur and am now 

a Vice Provost at UW and lead the university’s Center for Commercialization, known as C4C. I’m here to express gratitude for how 

the SBIR program is working to help one of America’s leading public research universities really fulfill the promise of seeing our researchers’ discoveries reach patients and society. 

Over the past five years, C4C staff have helped UW startups win 

$20.5 million in SBIR–STTR grants, and we have another $10 million of proposals filed and pending. These grants provide a critical 

bridge to private investment for our university life science, materials, and technology startups. 

C4C is more than tech transfer for the University of Washington. 

Five years ago, the university reorganized Tech Transfer into C4C 

to provide the greater assistance and functions, mentorship, talent 

recruitment, and, above all, of course, funding necessary if UW was 

really to emphasize spinout of startup companies around our innovations rather than rely on license to larger existing companies, 

which isn’t always an available option, even if we wished that it 

were. 

We have built an extensive ecosystem for innovation entrepreneurship around the UW, recruiting, by way of example, veteran 

entrepreneurs such as—to be entrepreneurs in residence such as 

Bob Barry, who just gave testimony. But talent is really not 

enough. So as part of our gap funding initiatives, I think we’re 

unique as a university perhaps in providing a full time grant writer to help UW startup teams apply for SBIR and STTR grants. 

In interrogating researchers who we thought should be eligible 

for this kind of support, we found that they didn’t understand 

SBIR grants nearly as well as we might expect, despite the fact 

that their primary career is based on winning research grants. The 

process and focus of these proposals is different enough from those 

for basic research grants that C4C is able to provide real assistance 

to our researchers in pursuing these funding opportunities. And, as 

I said, over the last five years, we’ve provided direct assistance to 

our startups in winning over $20 million in SBIR and STTR, with 

great results. 

The University of Washington is currently ranked number one in 

the nation for licenses executed annually. That’s to startups and 

existing companies together. We were number one for the number 

of distinct innovations under license, so we don’t only have one 

lucky technology that’s being licensed hundreds of times. Probably, 

though, most importantly for our regional economy and our faculty, 

who care deeply about the opportunity to start companies around 
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their work, last year, we were suddenly among the top five universities in the United States for launching startups. 

We launched 17 technology startups last year, and that was more 

than double UW’s 10-year run rate of seven, on average. We are 

on track to launch another 17 this fiscal year which ends in just 

a few months—so a really big change with the support of SBIR. 

C4C supported startups are qualitatively improved from the 

past. On average, they have larger target markets, customer validation, more experienced management, and they’re more worthy of 

funding. But the reality is that they are still often painfully early 

in stage, and SBIR and STTR awards are often the only capital 

that makes it possible for university founders and outside talent to 

take that pivotal step, to decide to take the risk, and to convince 

their families to allow them, and alongside them take the risk of 

committing themselves to the risky endeavor of starting up a company, suffering the opportunity cost of dedicating themselves to the 

success of a new company. 

I think the key aspects to UW’s success in spinning out companies are, first and foremost, a world class research base; our expert 

commercialization staff, which includes this life science PhD grant 

writer; deep engagement of our business community, as well as our 

researchers and students; and gap funding. 

A persistent challenge to technology startups in our region is this 

dearth of early-stage funding that I’m sure you hear about early 

and often. In Washington, the angel and venture communities mirror our industry, and they’re strongest in software, in retail, and 

in e-commerce. There are sector specialized angel groups for clean 

tech and medical device that are increasingly active. But it is just 

so much harder to raise money in life sciences or material science, 

despite the fact that we have a proliferation of innovations in those 

areas at UW. 

For startups in the life sciences, there is a painfully predictable 

valley of death between the point to which NIH will fund and the 

proof of concept that we all know investors require to risk their 

capital. For startups in a nascent sector, such as clean tech, where 

it’s often unclear whether technology is proven to perform technically and scientifically and better for the environment, can compete on price in the marketplace. There’s no carbon tax yet. In sectors where there is this much uncertainty, investors have a hard 

time understanding which investments won’t be strategic philanthropy. Young companies really need SBIR grants to give them the 

time to make that necessary showing of venture worthiness. 

I think the funding gap actually has many dimensions, and our 

startups and their investors try to formulate an overall funding 

plan. UW C4C has somewhat of a variety of funding entities and 

strategies to address the gap. Bob Barry mentioned a number of 

foundations that we actually work together with to provide a combined funding initiative, where we all grant in concert so that instead of spreading out money in such a dispersed way that no 

startups actually get over the line, we are making our bets collectively on the best opportunities. 

However, while we have a significant budget at UW to provide 

up to $50,000 in commercialization grants and support while the 

project is inside the university, we took the extraordinary step of 
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a big effort that resulted in a venture fund, university affiliated, 

committed to—the W Fund, which I run for UW—committed to investing exclusively in innovation-based startups spinning out of the 

research institutions in Washington State. 

I thought it was worth mentioning that even where a university 

has taken the step of raising its own affiliated venture fund, at 

least half of the W Fund investments—and I think more—went to 

SBIR recipients. So we were investing alongside companies that 

had the benefit of SBIR support. 

SBIR provides what I call but-for non-diluted capital to our technology startups. Often, this SBIR award is the only capital that 

really enabled us to launch the company that led us to 17 companies last year. An SBIR or STTR award helps technology startup 

companies go on to raise private risk capital. 

I’ve seen that angel investors see an advantage, not only in believing that there’ll be a leverage effect on their own investment, 

because the money will take that company much further alongside 

federal money, and the runway for that company to make progress 

is that much more significant, but also they believe in the technical 

validation that an SBIR or STTR award provides. 

Finally, it’s occurred to me that to produce even more impact 

from investments in the SBIR and STTR programs, I’d love for us 

to think about a way where the federal government could give preference to those companies that don’t plan to remain an R and D 

operation, but can demonstrate that they are actively pursuing private investment to fund growth and to reach patients in the marketplace. We have numerous examples of UW spinouts which I see 

as having fulfilled the promise of SBIR in that they leveraged your 

critical federal support to hire talent, but then went on to succeed 

in garnering risk capital and traction with development partners 

and customers. 

Thank you. 

[The prepared statement of Ms. Rhoads follows:] 
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Chairwoman CANTWELL. Thank you very much. 

Adriane, welcome. 

I’m sorry about the microphones here, so thank you for everybody sharing. 

STATEMENT OF ADRIANE BROWN, PRESIDENT AND COO, 

INTELLECTUAL VENTURES, BELLEVUE, WA 

Ms. BROWN. My name is Adriane Brown. On behalf of Intellectual Ventures, I would like to thank Senator Cantwell and the Senate Committee on Small Business and Entrepreneurship for the opportunity to speak today on the subjects of innovation, job growth, 

the invention economy in the Pacific Northwest, and how government can best support innovation. I’d also like to welcome Administrator Contreras-Sweet to our region and thank her for her leadership. Your combined commitment to fostering our region’s iconic 

and dynamic high-tech economy is extraordinarily important. 

I’d like to briefly introduce Intellectual Ventures and our work 

to the committee and make three points about the invention economy based on our experience. Intellectual Ventures is an invention 

capital company and is the global leader in the business of invention. We believe ideas are valuable, and we’re not alone. According 

to the U.S. Commerce Department, IP-intensive industries currently contribute more than $5 trillion per year or nearly 35 percent of the U.S. GDP. 

Our mission is to energize and streamline the invention economy 

in a manner which allows us to generate a return on our invested 

capital, and which should also allow others to be motivated to invest their capital into the invention economy in expectation of earning a return as well. 

My first point: We recognize the value of feeding the invention 

economy and encourage the committee to support a variety of business models that fuel the marketplace of invention. Intellectual 

Ventures manages more than $6 billion in committed capital and 

has paid more than $720 million to startups and small businesses, 

as well as more than half a billion dollars to individual inventors 

since 2000, and we will continue to do so. 

One of the questions we are asked frequently is why invention 

matters. The old proverb often ascribed to Plato says ‘‘necessity is 

the mother of invention.’’ The constant need to make faster, smaller, cheaper, better versions of nearly everything requires constant 

innovation, which leads to a continuous cycle of invention. 

Most people don’t realize that smartphones contain, on average, 

25,000 to 30,000 patents and innovations. That’s a mountain of 

technology and intellectual property to either protect or access from 

many sources. It’s critical for there to be a marketplace that represents and rewards innovation and intellectual property rights accordingly. 

Inventors want to be paid for their work, companies of all sizes 

want to be able to make a return on their invention investments, 

and universities, like our own University of Washington, one of the 

world’s foremost research institutions that you’ve just heard about, 

want to further their research and development programs. I urge 

this committee and the SBA to do everything possible to keep the 

invention economy vibrant by supporting startups and small busi-
27 

nesses that thrive because of investments in patents and intellectual property and benefit from grant programs like the SBA’s SBIR 

grants. 

My second point: Intellectual Ventures is also creating companies, jobs, and public good through innovation. Two examples with 

local impact are Kymeta and TerraPower. Kymeta, a 2012 spinout 

from Intellectual Ventures, currently employs more than 100 people in Redmond, Washington, and is focused on commercializing a 

new, innovative, metamaterials-based antenna for satellite communications. TerraPower, a nuclear energy company based on early IV 

inventions, employs more than 80 people in Bellevue, Washington. 

And, finally, our Passive Vaccine Storage Device, which is on display here in MOHAI, is one of our Global Good inventions that enables medical professionals to reach remote health posts and treat 

people, especially children, throughout the developing world. I urge 

this committee and the SBA to make it possible for companies to 

continue to create jobs and public good through invention. 

My last point: Our startup initiative allows us to bring our network of more than 4,000 inventors to bear on ideas and growth opportunities for small businesses, joint ventures, and spinouts based 

on our customers’ interests and our portfolio of technologies. We 

also support the SURF Incubator, a local Pacific Northwest initiative that fuels local innovation. Our work together has allowed us 

to develop a rich pipeline of opportunities that we are exploring. 

The future of innovation remains bright, and we continue to invest in research and development efforts on multiple fronts. We encourage the committee and the SBA to continue to support policies 

and programs which allow for investment and partnership in 

startups and incubator programs like those I have highlighted here 

in the Pacific Northwest. 

So, in summary, Intellectual Ventures is committed to the invention economy, and it is our hope that this committee and the SBA, 

as well as Congress overall, will continue to support a strong invention economy. So thank you, Chairwoman Cantwell and Administrator Contreras-Sweet and all of the members of the committee 

here today. 

[The prepared statement of Ms. Brown follows:] 
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Chairwoman CANTWELL. Thank you. 

John. 

STATEMENT OF JOHN NEUMANN, ACTING DIRECTOR, U.S. 

GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC; 

ACCOMPANIED BY HILARY M. BENEDICT, ASSISTANT DIRECTOR, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC 

Mr. NEUMANN. Chairwoman Cantwell and Madam Administrator, my name is John Neumann, and I’m an Acting Director 

with the U.S. Government Accountability Office leading our portfolio of audits related to the science and technology area. I am 

pleased to be here today with my colleague, Ms. Hilary Benedict, 

to discuss our recent work on federal small business research programs. 

As you know, the Small Business Innovation Research Program, 

SBIR, and the Small Business Technology Transfer Program, 

STTR, were established to use small businesses to meet federal research and development needs. Since their inception, federal agencies have awarded about 150,000 contracts and grants totaling 

nearly $40 billion to small businesses to develop and commercialize 

innovative technologies. 

As you mentioned, currently, 11 federal agencies participate in 

SBIR and five participate in STTR based on their annual budget 

for research and development conducted outside of the government, 

including at private companies and universities. This morning, I 

would like to briefly highlight two key points from our September 

2013 report on these programs. 

First, when we reviewed data from fiscal years 2006 to 2011 from 

the agencies that participated in these programs, we found that 

most did not consistently comply with spending requirements. Specifically, eight of the 11 agencies that participated in SBIR and 

four of the five that participated in STTR did not comply with 

spending requirements for all of the six years we looked at. Some 

of the agencies cited difficulties in spending the required amounts 

each year, particularly when their appropriations were late, which, 

in turn, delayed their contract awards to small businesses, among 

other reasons. 

Second, in our 2013 report, we also found that participating 

agencies had not consistently complied with certain annual reporting requirements. For example, the majority of the agencies did not 

itemize each program that they excluded from their calculations for 

their extramural research and development budgets as required by 

SBA policy directives. 

This made it difficult for SBA to determine whether agencies 

were accurately calculating their spending requirements. SBA did 

not always know which research and development programs the 

agencies excluded and why they were excluded. 

I also want to note that we made several recommendations to 

SBA to address our findings, including recommending that it provide guidance to participating agencies to improve their compliance 

with spending and reporting requirements, as well as to increase 

transparency in SBA’s reports to Congress. We understand that 

SBA is in the process of addressing these recommendations. 
34 

Chairwoman Cantwell and Madam Administrator, this concludes 

my prepared statement. But my colleague and I are pleased to respond to any questions you have about our work. 

[The prepared statement of Mr. Neumann and Ms. Benedict follows:] 
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Chairwoman CANTWELL. Thank you. 

Mr. Weed. 

STATEMENT OF RUSS WEED, UE TECHNOLOGIES, MUKILTEO, 

WA 

Mr. WEED. Thank you, Senator Cantwell, Administrator 

Contreras-Sweet, and your staffs and MOHAI for the opportunity 

to speak today on the importance of small business innovation and 

research, including the SBIR program, driving job growth through 

commercialization. 

My name is Russ Weed. I’m the VP of Business Development for 

UniEnergy Technologies based in Mukilteo, Washington, and also 

its general counsel. UniEnergy Technologies, or UET for short, 

manufactures and delivers large-scale energy storage systems for 

utility and grid, micro-grid, commercial and industrial, and other 

applications. The core technology is an advanced vanadium, element number 23, flow battery, with its technology origins at the 

Pacific Northwest National Laboratory here in Washington State, 

with funding from the Office of Electricity at the U.S. DOE. 

Because of the critical problems solved by the technology developed at PNNL, and with the support of a multinational private equity group, the PNNL energy storage program leader, who is here 

today, and his chief scientist came out from the lab and formed 

UET in March 2012. UET agreed upon a license agreement with 

PNNL and, fortunately, with full funding, put in place a worldclass engineering, manufacturing, and business team which has designed and delivered a commercial product now available for sale 

in just two years. 

I’ve brought for you an impromptu picture taken yesterday of one 

of our Uni.Systems—it’s on the front corner of your table there— 

which at the end of this year will be installed at a distribution substation for a Washington State utility. As I said, this was an impromptu photo with the short amount of time. This is a utility class 

system, storing a large amount of energy, up to a maximum of 1.8 

megawatt hours, with a peak power of 600 kilowatts. 

With further research and development, including supported by 

SBIR and other SBA programs, as I will further comment on, we 

plan for our system’s performance measures to grow further in 

scale. Our constant objective is to increase the cost-benefit effectiveness of energy storage, called the holy grail for the grid for 

some years, before the concept of a smart grid arrived on the scene. 

It is imperative for the integration of renewably-generated energy, 

implementation of the smart grid, and our clean energy future that 

our utility and other large-scale energy systems have the ability to 

buffer energy supply and demand, from millisecond bursts to 

hours-long, even day-long shifts, in other words, to have utilityclass energy storage. 

UET has a 67,000 square foot engineering and manufacturing facility in Mukilteo, about 30 minutes north of here next to Boeing’s 

Paine Field. We are scaling up to produce 100 megawatts of advanced vanadium flow batteries annually. 

As you can see from the second photo I brought, again taken impromptu yesterday, presently we are 40 people, scaling up to about 

100 people by the end of 2015. This includes scientists, engineers, 
51 

technicians, and business people. We are a capital equipment manufacturing company, as you can see—these are big systems—with 

our biggest employment need now being technicians, mechanical, 

electrical, and other skilled technicians. 

Thus, we are working closely with local community colleges that 

either have or will have programs producing the technicians we 

need. UET is very glad and proud to be growing skilled manufacturing jobs in Washington State with family wages and health care. 

Of course, UET is only one company in the clean tech cluster 

growing here in the evergreen state. It is important for us to acknowledge UET has gotten to this point and will only go further 

with the critical help of our partners in ecosystem. That includes 

the DOE, PNNL, the Washington Clean Technology Alliance, 

whose president is here today, the Washington State Department 

of Commerce, Avista Utilities, Snohomish Public Utility District, 

Energy Northwest, Puget Sound Energy, and the Trade Development Alliance. 

While UET is a manufacturer of large-scale energy storage systems for commercial use, we are a product company. We were not, 

at the beginning of the company, a research company. Nonetheless, 

we aim to keep and hopefully extend our technology lead by continuing to press ahead with our R and D efforts. The UET R and 

D team has eight PhDs who are pushing night and day, literally, 

on innovation related to energy storage systems, stacks, which are 

large-scale electrodes in flow batteries, electrolyte for flow batteries, and controls, among other areas. 

Two research projects we have in mind for SBIR funding are the 

cost-benefit effective combination of energy storage and solar generation, and the full automation of manufacturing of stacks which 

could enable on-shoring of production in the United States. With 

real megawatt-sized projects soon in Washington State, UET will 

have the ‘‘iron in the ground’’ to show we would use SBIR and 

other SBA funds for a sound business purpose, to reference Linden’s comments on the challenge of clean tech companies making 

this showing, and we are very pleased that we will be able to do 

so. 

Then we will need to work through some of the Small Business 

eligibility requirements, such as the size standards of 1,000 employees for primary battery manufacturing, but 500 employees for 

storage battery manufacturing. We look forward to that process 

and would very much appreciate your help as we do so. 

Thank you again for the opportunity to speak today on behalf of 

UET, and please let me invite you, Senator Cantwell, Administrator Contreras-Sweet, and your staffs, to visit UET’s facility just 

a bit north of here. 

[The prepared statement of Mr. Weed follows:] 
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Chairwoman CANTWELL. Well, thank you all very much for your 

ability to paint a picture of the opportunity and challenges that we 

face and for your specific recommendations on SBIR and small 

business programs. You know, I’m struck by some of the very specific things that each of you have said. 

I don’t know, Administrator, if you wanted to start with the 

questioning. 

Ms. CONTRERAS-SWEET. I have a couple of questions, but please, 

go ahead. 

Chairwoman CANTWELL. Thank you. 

Adriane, you talked about 35 percent of our GDP based on innovation. And Linden specifically pointed out that this was about negating the risk that the rest of the market—that SBIR is basically 

taking the risk out of the first phase of the investment that Level 

A funding isn’t willing to do. 

So my question is how do we categorize the right amount of investment by our country in SBIR? Because I would say, looking at 

what you guys are presenting today, and Linden, what you just 

talked about with your incredible success at the University of 

Washington, we should be doing more. And who’s to say that that 

35 percent couldn’t be 40 percent if we made the right level of investment? 

Ms. RHOADS. You know, it occurs to me that there’s a common 

platitude among venture capitalists that’s pretty self-serving to existing venture capitalists, that they often say that for a good idea, 

there’s always capital, and you’re going to find it. And I guess I can 

say that from my chair at the University of Washington, we see 

venture worthy—you know, good ideas that are very close to proof 

of concept or have rudimentary proof of concept that we think 

would be successful in the marketplace not find that early stage 

funding and die on the vine all the time, or not find it in time and 

lose all momentum, because the recent PhDs can’t wait around and 

have to take that academic job or that job in industry, sometimes 

even to stay in the country. 

So, I mean, if we’re asking is there more unfulfilled potential, are 

there additional opportunities that if they only had seen even a few 

hundred thousand dollars in early stage funding might have become successful companies bringing innovation to our country, I 

think the answer is yes. So I think we’re underserved today. 

Chairwoman CANTWELL. Is there any way to quantify that? 

Ms. BROWN. I don’t know that we can quantify it, but when I 

look at the variety of sources that a startup might have access to, 

particularly when they have been investing in inventions that support their business, sometimes we have found that they’ve invented 

some things that they didn’t need along the way. And a company 

like Intellectual Ventures or others might be able to fulfill some 

value for those inventions which helps. 

But there’s nothing like the kind of support that SBIR can give 

where—what did you say that it was? 

Ms. RHOADS. But for. 

Ms. BROWN. The more that we can increase this and find ways 

to step it, the more we’ll see an increase in economic outcomes. 

Chairwoman CANTWELL. Well, I think to your point, Rob mentioned the LIDAR technology. I can guarantee you when we get to 
56 

Oso, you’re going to see a LIDAR map of the challenges that we 

face in rebuilding there because of the potential for mudslides in 

the future. And that LIDAR mapping, as you said, was not what 

he was exactly going for to begin with, but ended up with that 

technology as well. So there is something to be said for that. 

Robert, you mentioned taking risk out of the equation. How 

would you judge the level of investment for SBIR, given—you 

know, what we’re trying to do in the future is lower health care 

costs and keep pace with the level of invention that we can do in 

the medical area. 

Mr. BARRY. As I mentioned, there has been quite a drop in the 

early investment of private capital. On the late end of private capital for medical devices and biotech, the investment has been okay. 

It’s maintained. But those companies are much closer to—there’s 

much less risk on the investment because it’s usually developed, 

there’s usually revenue, and they’re closer to an exit. 

So if you take the early companies, you have to be willing to look 

at an investment over a longer period of time, say, on average, 10 

years. And many of the venture capital funds today are just not 

geared for those longer-term investments. They’re looking for the 

shorter-term investments to get—to prop up their funds so that 

they can raise more funds. That’s been part of the issue with the 

inability or the unwillingness of venture capital funds, especially to 

fund the early companies. 

So I think, as I said, now more than ever, the SBIR grants to 

get a company ready for Series A are very important. And what I 

mean by that is it’s basically trying to take out as much risk to the 

investor as efficiently as you can prior to them coming in. So the 

less risk, the more things that you’ve ticked off in terms of does 

it work, can it be built, is there a market, the more likely those 

investors are to come in. 

Chairwoman CANTWELL. Administrator. 

Ms. CONTRERAS-SWEET. Thank you. I thank you again for your 

good stories. They’re so important to us. You know, with competing 

priorities and interests and limiting resources, it’s important for us 

to show the why of what you’re doing. And so to the extent that 

you can track longitudinally—and I really appreciate that each of 

you talked about your job creation. So I think it’s important for you 

to continue to track that longitudinally so we can make a case for 

these resources. So thank you, number one, for that. 

Number two, what I wanted to say is that I would hope that 

along the way, wealth should not be a prerequisite to creating innovation. So I’ve always concerned myself, having had just a little 

stint in investments—I’ve concerned myself that, you know, the 

question was always, ‘‘Well, how much skin in the game do you 

have? How do we make sure that you’re invested if I’m going to invest in you?’’ 

So I think that this program helps to address some of those 

issues. So I’d want to know about how that works in that regard, 

because I want to make sure that all people can be innovators, and 

if they don’t have skin in the game, if they don’t have the initial 

anchor investment, they can still spur activity in innovation. So I’m 

concerned about that. 
57 

Third, what I’d like to know—and I’m just sort of throwing these 

out, generally speaking. What I’d like to learn from you if any of 

you could address this third question, which is: How did you learn 

about our programs? Because I want to know if we’re getting the 

information out to the vast audiences that we should be reaching 

to make sure that we’re allowing everybody to invent, to innovate. 

And if they’re not in a university, how do we get out to them? 

So I’d be interested, just generally, in those three areas of commentary, because I want to make sure that I can come back and 

learn about how we can continue to promote SBIR. Again, the notion was not that we wanted to put a cap. It was supposed to be 

a floor. If universities and other agencies can actually promote 

more, then we want them to allow small businesses to spur. 

We know that small businesses, as I said at the top of my comments, are the innovators of job creation. And so I would hope that 

to the extent that you all can partner with us—you know, I’m a 

sales person at heart, and if I don’t call for the sale, you know, you 

don’t make the sale. So I really think it’s important for all of us 

to collaborate and to agree that we’re going to help promote programs like this so that they’re funded, that all people can access 

the programs, and that they’re getting the right return on investment. 

So if you could just—you know, each of you sort of addressed job 

creation. But if you could help me address those questions, I’d really appreciate it. 

Dr. AFZAL. Maybe I can address job creation almost from a—looking back from a large corporation, now that I look at things from 

that perspective. Decades ago, the large corporations in America 

had very extensive, deep research labs that did fundamental research—Bell Labs, for example, IBM, et cetera. Much of that has 

gone away, not completely, but what’s opened up is a marketplace 

for the new ideas, and it’s really in the small businesses. They can 

take the risk. They can generate new ideas, and as they blossom, 

then they can be brought to market, either by acquisition by a 

large corporation to be brought into their space, or they get venture 

funding and grow their company. Either way, that is the validation 

of the ideas. It brings the products forward, and then, ultimately, 

that leads to jobs. 

So it’s critical that we now have kind of a new paradigm in how 

R and D research, new product development, invention is being 

done, and it’s not just stove-piped within corporations that then 

only feed themselves. 

Chairwoman CANTWELL. So research is flat, too. 

Dr. AFZAL. Yes. That’s unfortunate. 

Chairwoman CANTWELL. Well, no, I don’t mean flat as in a budget perspective. 

Dr. AFZAL. Oh, I see. 

Chairwoman CANTWELL. I mean if everything is becoming more, 

you know—horizontal research, you’re saying, has become or needs 

to become, because it’s not as hierarchical as it used to be, given 

the investments. 

Dr. AFZAL. Absolutely. Yes. 

Mr. BARRY. Maybe a way to talk about this is the last company 

that I started, Uptake Medical. We raised $70 million from venture 
58 

capitalists. The company was started here in Seattle. This was before I was aware of things like SBIR. I went out and raised angel 

money, a million and a half dollars, which was great, and we were 

able to get the company started on that. 

However, as you come to learn, you lose ownership. So another 

important point about SBIRs is that they’re non-dilutive, and that’s 

an important aspect when you talk about whether the company 

that you start will remain in Seattle. In this case, I’ll be selfish 

here. We’re in Seattle. Will it remain in Seattle? 

There will be forces that will want to move the company closer 

to the venture capitalists who have the ownership. The only way 

to resist that is for the co-founders of the company to maintain 

ownership. So I think that’s another really important aspect of the 

SBIR program, and it helps to keep jobs in this region. 

As I mentioned, in the last company, yes, we’ve maintained the 

technical group here in Seattle, which is only a handful of people. 

There are 25 people that are employed with very good jobs, highpaying jobs, in California, unfortunately, rather than in Washington. 

Ms. RHOADS. Well, I remember what didn’t work. I mean, there 

used to be an economic development agency with some state funding. TASK was going out and promoting SBIR. And I explored that 

before deciding to dedicate a full time position to popularizing and 

assisting with SBIR application in our office. I think very few universities have a large enough research enterprise or commercialization budget to use as their strategy. We’re fortunate in that regard. 

And what they were doing was going around and giving seminars. I have to tell you that post-seminar, even if you made your 

way to one of them, it remains a daunting and obscure universe to 

think about how to go about applying for these grants. And it’s 

challenging for the university world. I mean, SBIR is invaluable, 

as I said, but still imperfect, because the grants are small compared to many basic research grants. 

So if we’re trying to prevail upon a principal investigator to take 

some of the time that they might be using to try to win a research 

grant from the NIH to keep their very large research organization 

going, and if the percentage opportunity of winning them is lower, 

they don’t often see the merits to trying. 

And, also, there’s confusion over whether there will need to be 

a full time person available to be inside the company or the new 

co if the award is won and how that will be structured and how 

equity will be divided. And without a lot of coaching, sometimes 

there’s fear around whether a team might lose control of their invention. 

I see SBIR as invaluable because we’re working very hard to recruit the talent necessary to pair with our great innovations if 

we’re going to see a successful spinout. And, often, even if we find 

talent that has had success in the past, they do need to be paid 

something, and these companies aren’t at a point where they can 

raise any private money now. 

And we also have this phenomenon we call the great PhD diaspora, which is that suddenly someone has won their PhD, and 

there’s another six months or a year it’s going to take to really get 

that technology, which they spent three years working on alongside 
59 

their research faculty, to a point at which it could attract risk capital. But they need a job now, maybe even to have a visa so they 

can stay in the country now. 

If they leave, sometimes all momentum will be lost, because 

there isn’t anyone else in that research group within the university 

who would be the right person to be part of a four or five-person 

early stage team, as the person really familiar with the technology, 

and maybe investors won’t see the principal investigator, the faculty member, deciding to be willing to be a chief scientific advisor 

for when—and the university is quite reassuring enough, I think, 

often for good reason. 

So if we don’t have some mechanism to keep the Robert Barrys, 

you know, foregoing all of the more secure and immediately remunerative opportunities that they might take on, or these recent 

PhDs working on this project, the opportunity is gone. And the 

shame of that to me is always that we’re going to see maybe millions of dollars in federal funding that led to something that could 

have potentially been very useful to society wasted, if you want to 

look at it that way. 

So at any rate, I think there’s, you know, changes that could be 

made to make it clearer how you staff an SBIR funded company 

in a way that is congruent with being part of a university spinout, 

and also maybe grants like goals and even maybe to Maria’s point 

about the amount of funding, the greater likelihood of winning one, 

that would be encouraging. 

Chairwoman CANTWELL. Thank you. 

Ms. BROWN. I’ll come at this maybe from a different perspective. 

Last year, Intellectual Ventures launched a study, a commissioned 

study, to ask smaller companies, CFOs, chief technology officers, 

and CEOs what were their perceptions about intellectual property 

and invention. And it was really pleasing that we got over 200 respondents, and it was clear that patents are very important to 

them. They understand that they need to have patents and intellectual property in some of their business models in order to succeed. 

We’ve had a number of people with really bright concepts and a 

real nugget of an idea, but didn’t feel like they had enough to really 

be able to launch a company. We’ve been able to work with companies like Coffee Flour, which launched last month, a partnership 

between an entrepreneur and Intellectual Ventures, where we provided some capital, but also some support that would provide, you 

know, product definition and prototyping and testing to really help 

it launch. 

So I see that if an entrepreneur has that idea and can work with 

others to really get the IP that’s necessary to give them the foundation, they have more options to drive the kind of investments that 

they need. And when you have that IP, when you have the clarity 

of how broad this market can be, I think it becomes a real attractant for those who would like to make investments, or the ability 

to then go to the Small Business Administration and say, ‘‘Here is 

how we expect to drive this market, how we want to develop the 

product, how we want to get it to customers and commercialize it.’’ 

So I think the use of IP in addition to the concepts and the innovations that are coming forward from the business really can use 
60 

SBIR dollars to help drive the supporting growth. So I would really 

encourage that we continue to do this to try to raise the numbers 

so that we can see the economic impacts that come from this. 

Ms. CONTRERAS-SWEET. Right. You know, I don’t know how many 

of you had an opportunity to read the Wall Street article that addressed that certain segments of our population are not accessing 

capital in the same way as others. And so I’m particularly concerned to make sure that we’re leveling the playing field for all of 

our good innovators, particularly focused on the African American 

community. 

So I’m trying to understand how we, as the SBA, as your federal 

government, can make certain that we are promoting the program 

in all circles and all opportunities. So I was trying to get at that 

a little bit as well. 

Ms. BROWN. Well, I think as you look at entrepreneurs and 

where perhaps there hasn’t been that level playing field, that access, finding where that community gets its information—you 

know, there are organizations that have deep ties, and I think 

leveraging communications in that area would help spur what it 

takes to get this idea developed and built, and they can get that 

support, and then learning how to do the grant writing, learning 

what it takes to actually apply, so that you can be eligible to get 

these dollars. There are absolutely ways that that can happen, and 

I think it’s a great opportunity for growth as well for those that are 

underserved. 

Mr. WEED. So on your three questions in terms of job creation, 

skin in the game, and learning of the SBIR program, you know, I 

mentioned we’re 40 people now. We’re scaling up to be 100 people. 

But that’s just to make 100 megawatts of systems a year. California now has a procurement program for 1.325 gigawatts of systems. 

So from our factory that we are scaling up, we could produce 

from that for 13 years and meet the procurement needs of California. In other words, it’s a huge market. 

Ms. CONTRERAS-SWEET. May I just say before you get to the second point, the senator knows that when I was going through my 

confirmation hearing, I acknowledged the role—as a Californian, I 

can say to you that I acknowledge the role that the state of Washington played in helping us get through our energy crisis. Few people were there for us, but the state of Washington allowed us the 

access to some of your energy, and so you sort of literally kept the 

lights on for us. 

So, indeed, as a Californian, I am very grateful to the state of 

Washington for being there in a time of need. Thank you. 

Mr. WEED. I would mention that one of our utilities here is looking at using energy storage as further providing a broader support 

in the energy markets for California. And, hopefully, you won’t 

mind that our plan is, of course, to get iron in the ground in Washington State and then to invade California. 

[Laughter.] 

Because it’s a very large market. There are other states that are 

important, of course. New York is important. Texas is important. 

And we are aiming to help make Washington State to be in that 

same list of the important energy storage markets. 
61 

The skin in the game part—of course, we’re a private company, 

so I should be a little demure. I will say that the private equity 

fund that has invested in us has been quite generous, has the ownership positions of management and of employees through a stock 

option plan. Frankly, it’s not something you always see in the 

United States. This private equity firm comes out of Australia and 

China. 

And I would say the United States, in terms of—and you’ve 

heard some discussion on this already in terms of the approach of 

VCs and so forth. We need more long-term thinking. That’s actually a term that we hear from our private equity funder very frequently. That’s a very frequent phrase, long-term thinking. 

In terms of learning of the SBIR program, of course, we knew 

about it. But in terms of really forming our intent to go after it, 

that actually came out of some discussions with the head of the 

DOE’s Advanced Manufacturing Program, Mark Johnson, as we 

discussed what the different possible uses of funds were and how 

we could fit the different programs together under the different eligibility requirements. 

Ms. CONTRERAS-SWEET. Thank you. 

Chairwoman CANTWELL. Well, I’d like to turn to the GAO on this 

issue, obviously, of your report, which is very concerning, because 

as we talk about how to increase SBIR use, all you have to do is 

say, ‘‘Okay, make these agencies who have so many dollars available—make them meet their requirements.’’ 

One of the things that you talked about, Mr. Neumann, was the 

fact that some of these agencies said—I mean, you mentioned six 

years running that they hadn’t met this mark. So it isn’t just the 

downturn of 2008 that caused it. Or you mentioned that, oh, well, 

they didn’t get appropriations bills done in time. Well, the Department of Health is meeting this standard, and they’re one of our biggest federal agencies. So the fact that they are actually meeting 

their set-aside—I would think that they have as complicated challenges on a budget as anybody. 

And the Department of Energy, which Mr. Weed—who’s to say 

that he wouldn’t have been funded already if, in fact, DOE had met 

its requirements? So what do we need to do to get these agencies 

to live up to this requirement? 

Mr. NEUMANN. That’s a good point. Although we didn’t focus on 

best practices in our 2013 report, during the course of that work, 

we did note that the Department of Health and Human Services 

intentionally set aside and spent more money. So that’s, in part, 

why they met the spending requirement in every year that we 

looked at. But there is some good news in—— 

Chairwoman CANTWELL. Because they went above the—— 

Mr. NEUMANN. Yes. They intentionally set aside more than the 

required amount in their planning for it. So in the end, they ended 

up going above or at least meeting the requirement without a problem in each of the six years we looked at. 

But there is some good news. If you look at 2011 with some of 

the other agencies, it did get a little better for 10 out of the 11 that 

participate in SBIR. Only the National Science Foundation didn’t 

meet spending requirements for that year. So I think there’s some 

movement in the right direction. And I think coupled with SBA’s 
62 

continued oversight of the agencies and as SBA implements some 

of the recommendations we made in that report, I think we will 

start to see improvement. 

Chairwoman CANTWELL. Do we need to go back and ask about 

best practices? Do we need to qualify best practices for an official 

record, or do you think we can do that informally? 

Mr. NEUMANN. I’ll let my colleague mention the ongoing work 

and whether or not we’re getting at any of that. 

Ms. BENEDICT. Sure. In our ongoing work, we are looking currently at the 2012 spending for SBIR and STTR. We did not ask 

about best practices this year, but we certainly could incorporate 

it into our methodology, if that’s something that would be useful 

to the committee. 

Chairwoman CANTWELL. Well, I think it’s interesting to think 

about why a federal agency like the Department of Health and 

Human Services meets that standard. And, of course, the University of Washington is probably number one in the country as far 

as public institutions with NIH research. So it all works well. 

But I always remind people—what is it—$300 million, something 

like that, of research between UW and WSU. Maybe it’s increased 

since I got my numbers. But just on the other side of the mountains, we have PNNL that gets, you know, three or four times— 

at least, definitely, it gets, you know, in the $800 million to $900 

million range. And yet where is the advent of that technology spinout? 

So it’s just—you know, there’s something that’s working on the 

health side, and it’s working on many fronts. And there’s something that’s definitely not working on the energy side, and it’s definitely not working on many fronts. So it says to me that, you know, 

either focus over time, and maybe—I don’t know, Mr. Barry, if you 

have comments on that, or if you think—you know, like there’s a 

threshold period here for SBIR funding within certain sectors, and 

until you reach that credibility, you have a challenge. 

But it’s clear with certain sectors of these research areas that 

we’re not making the goals on any front. It’s not happening from 

the top down, and it’s not happening from the bottom up. 

Ms. CONTRERAS-SWEET. I’ll also say, Senator, that I think it’s important that now the SBA has been elevated to the cabinet level, 

and that I’d be sitting at the table with some of my cabinet colleagues, that it’s also about leadership. So, certainly, I would, you 

know, sort of put on myself the opportunity to make sure that I am 

promoting it among my cabinet peers and raising this as an important opportunity for us to spur job creation and economic activity. 

So that would be number one. 

And number two, as I said, to the extent that we are promoting 

the program, that there’s also a demand in the marketplace so that 

people are approaching the departments, the agencies with these 

requests. And I think that both ends will help spur more compliance. 

Chairwoman CANTWELL. That’s good. I appreciate that. I like you 

sitting at the cabinet level reminding all of these cabinet officials 

that they’re not meeting their research standards for working with 

the SBA. 
63 

Mr. NEUMANN. And let me add that the SBA has a very powerful 

tool for encouraging agency compliance, and that’s the annual report to Congress. So to the extent that you provide some robust 

analysis in that report, I think it’ll shed some light on which agencies are doing well and which ones are not doing as well. I think 

that’s a very powerful tool. 

Ms. CONTRERAS-SWEET. And reminding them that we’re coming 

up on this report, and I think that’s right. The score cards are really important. Thank you. 

Chairwoman CANTWELL. Well, we’re about at time. I don’t know 

if anybody has any further comments they want to give for the 

record. I will point out at this moment that this is an official hearing, and so we do leave the record open for two weeks for all our 

colleagues to comment on this. And then this gets published as recommendations, and we take this as part of our official capacity to 

improve these programs. So we very much appreciate all the witnesses here today. 

And I don’t know—do you have any further questions? 

Ms. CONTRERAS-SWEET. Well, I think it’s really important, you 

know, in promoting something, to celebrate the successes. And so 

I really want to thank this great state, the senator, and each of you 

who have presented your stories, because to the extent that we can 

celebrate your successes, success begets success. 

I’m delighted with the ideas, the diversity of thought here, the 

diversity of opportunities that have been generated from this program. As I mentioned, the idea of storing energy is just fascinating 

to me, and I’m really interested in that technology. So maybe on 

the next trip out, we’ll come out and visit you. That’s okay. I mean, 

California needs more energy, so we’re happy to have you come on 

down. 

But I really want to challenge us—you know, I want to make 

sure that the Native American community is able to access these 

programs, and rural communities and urban centers alike, and that 

women are able to access this program. America is such a wonderful, beautiful place of diversity of thought, of ideas, of opportunity. 

So to the extent that you can help me think of ways to promote 

this program to make sure that more of our programs are available, particularly this one, but also—you know, again, as I said, I’m 

calling for the sale. I want to make sure that folks understand that 

not only is SBA here for access to capital, but that we do counseling, and we do contracting, so that those of you who are now finally launching your companies and are able to grow, that you 

think about the federal government as a partner, as a client. 

You know, so many of us have an uncle, and now I want to make 

sure that Uncle Sam is also available to you, to be able to diversify 

your portfolio so that you have private sector opportunities but also 

public sector opportunities. So think of those ways that we can help 

you get the word out throughout the state in all corners to make 

sure that everybody is able to reach this. That would be a great 

gift that you would bestow upon us. 

Thank you, Senator. 

Chairwoman CANTWELL. Well, thank you. And I want to mention 

that, as I said, the record is left open, but we have—I know tomorrow, I’m going to be with Senator Risch, who is the ranking mem-
64 

ber, and he’ll be very interested in DOE meeting its research 

standards that are being set, because there’s a lot of research being 

done in the state of Idaho. 

And we have with us people from Senator Risch’s Small Business 

Committee staff. We have Mr. Holderness, who is the staff director 

back there; and Ms. Kristen Granchelli, professional staff for the 

SBIR program. So we have people from the Small Business Committee staff that will stay here after we have to depart. So please 

feel free to talk to them. 

Also, Calvin Goings, our regional Small Business Administrator—Calvin, just wave—is here. He’s the Region 10 Administrator for the Small Business Administration, and he obviously is 

familiar with this program and many other programs. And we have 

many other staff here for people if you want to continue to talk to 

them afterwards, they’d be more than happy to have your input 

and comments, either as official or unofficial parts of the record. 

This has been very helpful. As I said, we wanted to have this 

hearing because the administrator was so generous to give her time 

to come to the Northwest. We think we represent a very unique 

perspective on how much job growth can happen with innovation. 

We hope that we can take today’s feedback and look at ways to increase the SBIR. 

As I mentioned earlier, I believe that we need to make something 

in America besides exotic financial instruments, and, clearly, the 

innovation here is an example of that. And if we can get the right 

amount of capital into the marketplace to do that, to me, I feel like 

that is a lot less risky than what happened with the implosion of 

our marketplace. 

I feel like we have an administrator who knows the capital markets well and will be a great asset to the administration. So we’re 

so happy that she was able to take this innovation hearing in and 

to digest some of your input. So we’ll look forward to working with 

her. 

Ms. CONTRERAS-SWEET. Just in closing, I want to thank you for 

mentioning that. I have to tell you that after I left office in California—I was California’s Secretary of Transportation and regulator of businesses and promoter of housing—but the point is that 

I felt that the common denominator to prosperity for America was 

through financing. We need to be able to finance our innovation, 

to finance our housing strategies, our transportation systems. So I 

learned very quickly that it was really essential that we focus on 

access to capital. 

So in that regard, after I left office, I decided to just start a financial institution to do just that. I started with private equity and 

then learned that, you know, not everybody wants to give up—as 

you said, they don’t want to be diluted. They don’t want to lose 

their equity position, and it’s a very expensive way to get capital. 

So then I studied what financial institutions were doing, the depository institutions, and decided that maybe that was the way to 

go. And in financing that, Senator, it was quite interesting, because, again, it’s like how do you finance a financial institution. So 

I did what anybody would do. I went to friends and family, and 

that’s the way that it worked for us. I just went to friends and family and emboldened them with the idea of doing this work. 
65 

So I’m interested in understanding crowd sourcing and the other 

mechanisms, so that when our traditional financial institutions 

don’t come through, what is the proper role of government in oversight, in seeding opportunities, in creating models, pilots that 

might be contemplated in the future. So this is the great state that 

innovates in so many ways, and so I was delighted to make this 

my first road trip in all of two weeks of service already. 

The senator was very good to ask me to defend my budget on day 

two. But we got through, and she’s just been an ardent champion 

for all of you, and as I said at the top of my comments, for the 

country. So I’m delighted to be a part of this hearing. I’m delighted 

to get to know you all, to hear your stories, and I look forward to 

you communicating with us. We’ve got to deepen this relationship. 

This should not be a one-time visit. I want this to be an ongoing 

relationship. 

And I was delighted that Calvin was able to be here with us representing us here in the district. Our district office is also represented here. And we have nice representation here in terms of 

the disaster relief team. So know that SBA stands ready to help 

you in your time of need as well as in your time of creative thinking. God bless you. God speed. Thank you. 

Chairwoman CANTWELL. Thank you. And on that note, we’re adjourned. 

[Whereupon, at 10:50 a.m., the hearing was adjourned.] 

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