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CREATING AND GROWING NEW BUSINESSES: 

FOSTERING U.S. INNOVATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION 

COMMITTEE ON SCIENCE, SPACE, AND 

TECHNOLOGY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

WEDNESDAY, NOVEMBER 2, 2011 

Serial No. 112–48 

Printed for the use of the Committee on Science, Space, and Technology 

( 

Available via the World Wide Web: http://science.house.gov 
(II) 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HON. RALPH M. HALL, Texas, Chair 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

DANA ROHRABACHER, California 

ROSCOE G. BARTLETT, Maryland 

FRANK D. LUCAS, Oklahoma 

JUDY BIGGERT, Illinois 

W. TODD AKIN, Missouri 

RANDY NEUGEBAUER, Texas 

MICHAEL T. MCCAUL, Texas 

PAUL C. BROUN, Georgia 

SANDY ADAMS, Florida 

BENJAMIN QUAYLE, Arizona 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

E. SCOTT RIGELL, Virginia 

STEVEN M. PALAZZO, Mississippi 

MO BROOKS, Alabama 

ANDY HARRIS, Maryland 

RANDY HULTGREN, Illinois 

CHIP CRAVAACK, Minnesota 

LARRY BUCSHON, Indiana 

DAN BENISHEK, Michigan 

VACANCY 

EDDIE BERNICE JOHNSON, Texas 

JERRY F. COSTELLO, Illinois 

LYNN C. WOOLSEY, California 

ZOE LOFGREN, California 

BRAD MILLER, North Carolina 

DANIEL LIPINSKI, Illinois 

GABRIELLE GIFFORDS, Arizona 

DONNA F. EDWARDS, Maryland 

MARCIA L. FUDGE, Ohio 

BEN R. LUJA ́ N, New Mexico 

PAUL D. TONKO, New York 

JERRY MCNERNEY, California 

JOHN P. SARBANES, Maryland 

TERRI A. SEWELL, Alabama 

FREDERICA S. WILSON, Florida 

HANSEN CLARKE, Michigan 

SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION

HON. BENJAMIN QUAYLE, Arizona, Chair 

LAMAR S. SMITH, Texas 

JUDY BIGGERT, Illinois 

RANDY NEUGEBAUER, Texas 

MICHAEL T. MCCAUL, Texas 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

E. SCOTT RIGELL, Virginia 

RANDY HULTGREN, Illinois 

CHIP CRAVAACK, Minnesota 

RALPH M. HALL, Texas 

DONNA F. EDWARDS, Maryland 

JOHN P. SARBANES, Maryland 

FREDERICA S. WILSON, Florida 

DANIEL LIPINSKI, Illinois 

GABRIELLE GIFFORDS, Arizona 

BEN R. LUJA ́ N, New Mexico 

EDDIE BERNICE JOHNSON, Texas 
(III) 

C O N T E N T S 

Wednesday, November 2, 2011 

Page 

Witness List ............................................................................................................. 2 

Hearing Charter ...................................................................................................... 3 

Opening Statements 

Statement by Representative Benjamin Quayle, Chairman, Subcommittee on 

Technology and Innovation, Committee on Science, Space, and Technology, 

U.S. House of Representatives ............................................................................ 5 

Written Statement ............................................................................................ 6 

Statement by Representative Donna Edwards, Ranking Minority Member, 

Subcommittee on Technology and Innovation, Committee on Science, Space, 

and Technology, U.S. House of Representatives ............................................... 7 

Written Statement ............................................................................................ 9 

Witnesses: 

Brink Lindsey, Senior Scholar in Research and Policy, Ewing Marion 

Kauffman Foundation 

Oral Statement ................................................................................................. 11 

Written Statement ............................................................................................ 12 

Julian Mann, Co–Founder and Vice President, Product Development and 

Research, Skybox Imaging 

Oral Statement ................................................................................................. 16 

Written Statement ............................................................................................ 18 

Ray Rothrock, Partner, Venrock 

Oral Statement ................................................................................................. 20 

Written Statement ............................................................................................ 23 

Steve Dubin, Former CEO, Martek Biosciences, and Senior Advisor to DSM 

Nutritional Products 

Oral Statement ................................................................................................. 28 

Written Statement ............................................................................................ 30 

Discussion 33 

Appendix 1: Answers to Post-Hearing Questions 

Brink Lindsey, Senior Scholar in Research and Policy, Ewing Marion 

Kauffman Foundation .......................................................................................... 50 

Julian Mann, Co–Founder and Vice President, Product Development and 

Research, Skybox Imaging .................................................................................. 54 

Ray Rothrock, Partner, Venrock ............................................................................. 59 

Steve Dubin, Former CEO, Martek Biosciences, and Senior Advisor to DSM 

Nutritional Products ............................................................................................ 65 

Appendix 2: Additional Material for the Record 

Rebuilding the IPO On-Ramp: Putting Emerging Companies and the Job 

Market Back on the Road to Growth .................................................................. 70 

(1) 

CREATING AND GROWING NEW BUSINESSES: 

FOSTERING U.S. INNOVATION 

WEDNESDAY, NOVEMBER 2, 2011 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION, 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:06 a.m., in Room 

2318 of the Rayburn House Office Building, Hon. Benjamin Quayle 

[Chairman of the Subcommittee] presiding. 
2 
3 

1 T. Kane, ‘‘The Importance of Startups in Job Creation and Job Destruction,’’ Ewing Marion 

Kauffman Foundation, July 2010; http://www.ces.census.gov/index.php/bds/bds¥home. 2 ‘‘The OECD Innovation Strategy: Getting a Head Start on Tomorrow,’’ OECD 2010. 

HEARING CHARTER

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION 

U.S. HOUSE OF REPRESENTATIVES 

Creating and Growing New Businesses: 

Fostering U.S. Innovation 

WEDNESDAY, NOVEMBER 2, 2011

10:00 A.M.—12:00 P.M. 

2318 RAYBURN HOUSE OFFICE BUILDING

Purpose 

On Wednesday, November 2, 2011, the Subcommittee on Technology and Innovation will convene a hearing to examine the current state of small, innovative startup 

companies, which are engines of both transformative innovations and job creation. 

The Subcommittee will seek testimony on obstacles limiting those with the ideas 

and desire to either start a new company, or take a fledgling company to a place 

of rapid growth. 

Witnesses 

• Mr. Brink Lindsey, Senior Scholar in Research and Policy, Ewing Marion 

Kauffman Foundation. 

• Mr. Julian Mann, Co-Founder and Vice President, Product Development and 

Research, Skybox Imaging. 

• Mr. Ray Rothrock, Partner, Venrock. 

• Mr. Steve Dubin, Former CEO, Martek Biosciences; Senior Advisor to DSM 

Nutritional Products. 

BACKGROUND

New businesses have historically played a major role in advancing both job creation and innovation in the U.S. economy. According to research conducted by the 

Kauffman Foundation and the U.S. Census Bureau’s Business Dynamics Statistics, 

startup companies (those in their first year of existence) added an average of three 

million jobs per year between 1977 and 2005, whereas existing companies (those 

aged one year and older) experienced net job losses over the same period. 1 By their 

very nature, new businesses advance innovation because entrepreneurs identify 

market opportunities that current businesses are not addressing and create companies to satisfy these market opportunities. Through the last decade, many business 

efforts that started with an individual or small group have grown and transformed 

the way we live our lives. For example, social media startups such as Facebook and 

Twitter have introduced new ways to communicate both personally and professionally. 

Innovation and High-Growth Industry Startups 

The Organization for Economic Co-operation and Development (OECD) defines innovation as the introduction of a new or significantly improved product (good or 

service), process, or method. 2

Examples of innovation include the development of new products which have the 

capacity to fundamentally change the market, such as the personal computer or the 

semiconductor. Alternatively, innovation can lead to improvements of existing products and services, such as improving the speed of microprocessors, or the 
4 

3 R. Atkinson, D. Castro, S. Andes, S. Ezell, D. Hackler, and R. Bennett, ‘‘Innovation Policy 

on a Budget: Driving Innovation in a Time of Fiscal Constraint,’’ Information Technology and 

Innovation Foundation, September 2010. 4 Information Technology Industry Council, www.itic.org. 5 T. Kane, ‘‘The Importance of Startups in Job Creation and Job Destruction,’’ Ewing Marion 

Kauffman Foundation, July 2010; http://www.ces.census.gov/index.php/bds/bds¥home. 6 J. Haltiwanger, R. Jarmin, and J. Miranda, ‘‘Business Dynamics Statistics Briefing: Historically Large Decline in Job Creation from Startup and Existing Firms in the 2008–2009 Recession,’’ Ewing Marion Kauffman Foundation, March 2011. 7 E.J. Reedy and Robert E. Litan, ‘‘Firm Foundation and Economic Growth, Starting Smaller, 

Staying Smaller: America’s Slow Leak in Job Creation,’’ Kauffman Foundation Research Series, 

July 2011, http://www.kauffman.org/uploadedFiles/job¥leaks¥starting¥smaller¥study.pdf. 8 Ibid. 

functionality of software. An example of process innovation is the implementation 

of lean manufacturing. 

Innovative companies have played a central role in the growth of the U.S. economy by providing mid-term and long-term employment and income growth. 3 Indeed, 

innovation has been responsible for approximately 80 percent of the growth in the 

U.S. economy since World War II 4 and new businesses in high-growth sectors have 

contributed significantly to the country’s innovative capacity. 

Over the past decade, the high-growth sectors of the U.S. economy have centered 

on information technology, health care, energy, defense, and advanced manufacturing. These sectors are dependent on the output of scientific and engineering-related research and development, and many small companies are also started based 

on intellectual property derived from basic research conducted at universities and 

other research organizations. 

Job Creation 

According to the Kauffman Foundation, job creation from startup companies remained relatively consistent between 1977 and 2005, even during periods of recession. 1A5 However, in recent years, startup companies have witnessed a significant 

decline in job creation. 1A6 While companies are still being created, they are starting up with smaller numbers of employees, and not adding employees at a rate that 

has been historically characteristic of small business growth. 1A7 This trend is troubling for the long-term outlook of job growth from small businesses. While the current economic environment may have exacerbated the situation, this data suggests 

the pattern predates the recent recession, leading to questions about whether a systemic change in the relationship between new company formation and job creation 

may be occurring. 8

Issues for Examination 

Many factors influence those with innovative ideas who want to start companies. 

The Committee is interested in understanding how local, State, regional, and federal 

policies influence the environment for new company creation or growth. Issues for 

examination within this hearing include: 

New Business Formation, Job Growth, and Innovation 

• What is the historical relationship between new business formation and job creation in the country? 

• What is the role of new businesses in driving the nation’s innovative capacity 

and competitiveness? 

• Do existing policies adequately address recent trends in job growth affiliated 

with new businesses? 

• What challenges are unique to entrepreneurs in the technology and innovation 

sector? 

Policy Obstacles and Opportunities 

• Local, State and federal stakeholders are all interested in both making targeted 

investments and removing barriers to companies starting and growing. What 

are the most significant policy levers? 

• How do federal policies influence potential research partnerships between 

startups and research institutions, or larger companies? 

• Should federal policies have a greater focus on new business formation, or on 

promoting business growth? 
5 

• Are there any federal policies that discourage potential entrepreneurs who are 

considering starting or expanding a company? 

Access to Capital 

• How important is access to capital in today’s environment? How have investment trends changed the types of innovations in the pipeline, and potential for 

companies to go public? 

• What opportunities exist for raising capital for startup companies that are located in areas without great concentrations of venture capital companies? What 

steps do venture capital companies take to identify investment opportunities 

outside their immediate geographical area? 

Chairman QUAYLE. The Subcommittee on Technology and Innovation will come to order. Good morning. Welcome to today’s hearing entitled ‘‘Creating and Growing New Businesses: Fostering U.S. 

Innovation.’’ In front of you are packets containing the written testimony, biographies, and truth-in-testimony disclosures for today’s 

witnesses. I will now recognize myself for five minutes for an opening statement. 

Before we get started, even though Ms. Edwards is not here, I 

would like to welcome her when she gets here because she is the 

new Ranking Member of this Subcommittee, and I am very eager 

to be working with her in the next coming year and a half. So we 

are very excited to have her as the new Ranking Member. 

But the goal of today’s hearing is to learn more about U.S. startup companies, which are engines of both transformative innovations and job creation. We will be hearing testimony on the obstacles impeding entrepreneurs from starting a new company from 

scratch or from expanding a fledgling company to a place of rapid 

growth. As this Subcommittee sits at the intersection of technology 

and innovation, we are uniquely positioned to address topics affecting competitiveness of emerging high-growth industries. Today’s 

discussion is the second in a series focused on advanced U.S. innovation in a constrained budget environment. 

Earlier this fall, we held a hearing on the opportunities and challenges of cloud computing. In the coming months, it is my intention 

to address a range of topics including the role of standards in international trade, the importance of collaborative research partnerships in the innovation ecosystem, and new developments in wireless communications. In these difficult times, it is important that 

we continue to empower our Nation’s innovators to maintain our 

economic competitiveness. 

Entrepreneurs and new businesses have played a vital role in advancing both job creation and innovation in our country. Over the 

last three decades, new businesses have created nearly 40 million 

jobs and have been responsible for nearly all net new job creation. 

New businesses also facilitate the spread and adoption of innovation because they are more likely to seize new developments in 

order to create market niches for themselves. 

From our founding, the United States has always cultivated the 

entrepreneurial spirit of its citizens, recognizing the vitality new 

businesses bring to commerce. Economist Robert Solow was awarded the Nobel Prize for his work demonstrating how economic innovation was the most powerful factor driving our country’s growth 

and productivity in the 20th century. The public and private sectors have worked to support entrepreneurship by facilitating new 
6 

business formation, access to capital, and financial rewards for success. In turn, these new businesses have added significantly to the 

growth and dynamism of our economy. 

Unfortunately, recent studies have found that the environment 

for new businesses has grown increasingly unfavorable. In the past 

three years, the number of new businesses launched has fallen 23 

percent. Recently, the World Bank’s ‘‘Doing Business’’ report 

showed that the United States has dropped in the ease of starting 

a business category from third to 13th since 2007. Capital investment in startup companies has decreased, and far fewer small companies are holding initial public offerings. 

But, as some of our witnesses may testify today, a number of 

these challenges predate the economic downturn of the last few 

years. The continued decline in new business formation and growth 

puts our Nation’s job creation and innovative capacity at risk. Recognizing this link between startup businesses, innovation, and job 

creation, the Subcommittee is interested in hearing from today’s 

witnesses about the environment for new business formation, and 

obstacles preventing entrepreneurs from forming new companies 

and accelerating their growth. This is a difficult question to answer 

given our current budgetary challenges, so I especially hope to hear 

from our witnesses examples of what the Federal Government can 

do to eliminate barriers to entrepreneurship, in addition to any 

other creative ideas they may have. 

I would like to extend my appreciation to each of our witnesses 

for taking the time and effort to appear with us today and we look 

forward to your testimony. 

I now recognize the gentlelady from Maryland, the new Ranking 

Member of this Subcommittee, Ms. Edwards, for her opening statement and welcome to the Subcommittee as the Ranking Member. 

[The prepared statement of Mr. Quayle follows:] 

PREPARED STATEMENT OF CHAIRMAN BEN QUAYLE, 

SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION, 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, U.S. HOUSE OF

REPRESENTATIVES

Good morning. Before we get started, I would like to take a moment to welcome 

Congresswoman Donna Edwards of Maryland to her new role as Ranking Member 

of this Subcommittee. I look forward to working with you and your staff in the 

112th Congress. 

The goal of today’s hearing is to learn more about U.S. startup companies, which 

are engines of both transformative innovations and job creation. We will be hearing 

testimony on the obstacles impeding entrepreneurs from starting a new company 

from scratch or from expanding a fledgling company to a place of rapid growth. 

As this Subcommittee sits at the intersection of technology and innovation, we are 

uniquely positioned to address topics affecting competitiveness of emerging highgrowth industries. Today’s discussion is the second in a series focused on advancing 

U.S. innovation in a constrained budget environment. Earlier this fall, we held a 

hearing on the opportunities and challenges of cloud computing. In the coming 

months, it is my intention to address a range of topics including the role of standards in international trade, the importance of collaborative research partnerships in 

the innovation ecosystem, and new developments in wireless communications. In 

these difficult times, it is important that we continue to empower our Nation’s 

innovators to maintain our economic competitiveness. 

Entrepreneurs and new businesses have played a vital role in advancing both job 

creation and innovation in our country. Over the last three decades, new businesses 

have created nearly 40 million jobs and have been responsible for nearly all net new 

job creation. New businesses also facilitate the spread and adoption of innovation 
7 

because they are more likely to seize new developments in order to create market 

niches for themselves. 

From our founding, the United States has always cultivated the entrepreneurial 

spirit of its citizens, recognizing the vitality new businesses bring to commerce. 

Economist Robert Solow was awarded the Nobel Prize for his work demonstrating 

how economic innovation was the most powerful factor driving our country’s growth 

and productivity in the 20th century. The public and private sectors have worked 

to support entrepreneurship by facilitating new business formation, access to capital, and financial rewards for success. In turn, these new businesses have added 

significantly to the growth and dynamism of our economy. 

Unfortunately, recent studies have found that the environment for new businesses 

has grown increasingly unfavorable. In the past three years, the number of new 

businesses launched has fallen 23 percent. Recently, the World Bank’s ‘‘Doing Business’’ report showed that the U.S. has dropped in the ease of starting a business 

category from third to 13th since 2007. Capital investment in startup companies has 

decreased, and far fewer small companies are holding initial public offerings. But, 

as some of our witnesses may testify today, a number of these challenges predate 

the economic downturn of the last few years. 

The continued decline in new business formation and growth puts our Nation’s 

job creation and innovative capacity at risk. 

Recognizing this link between startup businesses, innovation, and job creation, 

the Subcommittee is interested in hearing from today’s witnesses about the environment for new business formation, and obstacles preventing entrepreneurs from 

forming new companies and accelerating their growth. This is a difficult question 

to answer, given our current budgetary challenges, so I especially hope to hear from 

our witnesses examples of what the Federal Government can do to eliminate barriers to entrepreneurship, in addition to any other creative ideas they may have. 

I’d like to extend my appreciation to each of our witnesses for taking the time 

and effort to appear before us today. We look forward to your testimony. 

Ms. EDWARDS. Thank you, Mr. Chairman, and I apologize if I am 

late. Usually, my military dad would have reminded me that I 

should be on time, which I usually am, and so I apologize. And 

thanks for welcoming me to the Committee and for calling this 

hearing on small business creation and the way to spur innovation. 

I want to thank our witnesses for joining us here today to discuss 

the obstacles and the challenges that face small businesses and 

what this Subcommittee can do to help. 

Mr. Chairman, I am also honored to join you on this Subcommittee as Ranking Member, and I look forward to working with 

you on the many issues that come under our jurisdiction and ways 

in which we can actually work together in a collaborative and bipartisan way. 

I am certain there isn’t a person in this hearing room today that 

doesn’t recognize how important small businesses are to our economy. We say it all the time, particularly new small businesses that 

spur innovation and create jobs. According to the Small Business 

Administration, small businesses generated 65 percent of net new 

jobs over the past 17 years. And as we continue our efforts to put 

our economy back on track, we should be committed to fostering 

the creation of small businesses and give them the support and resources they need to succeed. 

And I am also certain that many of us here today would also 

agree that there is much that can be done to reduce the regulatory 

burden on emerging small businesses by reviewing duplicative or 

outdated regulations, as well as reducing bureaucracies that slow 

progress and add cost to business. I expect that many of us will 

also be united in our desire to create an environment for small 

business creation, and we can support policies that provide additional tax incentives to foster growth. I have long championed pro-
8 

viding incentives to companies that co-locate research and development activities with domestic manufacturing. I think this is good 

public policy; it is good tax policy, and these federal policies can 

incentivize good behavior and spur homegrown innovation, 

progress, and manufacturing—21st century manufacturing. 

We should also ensure that our communities have the proper infrastructure and support to help businesses thrive. For that reason, 

I appreciate the shout-out from Mr. Rothrock to the I–270 Corridor 

in your prepared remarks. The critical investments that our State 

in Maryland has made to support and grow businesses has been 

recognized by Bloomberg News in its naming of the region as one 

of the top 10 places for startups. And that is not by accident; it is 

by policy. 

There are additional ways to support small business creation, including amending our intellectual property laws to spur greater innovation and updating our immigration laws so that small businesses will have access to the most skilled workforce possible and 

enable entrepreneurs from throughout the world to set up shop 

here in the United States. 

And while there may be a shared interest in tackling these sort 

of matters, they unfortunately do not fall within this Subcommittee’s jurisdiction and are not the items on which we have the authority to legislate. So we should do what we can. We have to do 

a better job of transferring new ideas and technologies out of federal or university labs and into the hands of startup companies in 

this country. I believe there are many opportunities for us to 

strengthen and improve federal technology transfer, build on the 

lab-to-market efforts that are already underway within the Administration. And Mr. Chairman, I hope that this is an issue that we 

can explore together in the months to come. 

I think that we have to recognize that there is a role for the Federal Government as well. There are countless technologies that we 

use every day that can trace their origin back to federal research 

and development investments. I hope that our witnesses will testify 

about that today. The indisputable truth is that without new discoveries, we won’t have new game-changing technologies or the 

small businesses to make and sell them. The reality, though, is 

that those early risks are sometimes things that government needs 

to do and can do and then allow the commercial sector to take over. 

If we want a vibrant small business community that spurs innovation and creates new jobs, we have to provide sufficient funding 

to our federal research agencies. They are key. And if we turn our 

back on federal research and development, the medium- and longterm impacts on small business creation will be devastating. 

Finally, we should be building on the foundation this Committee 

laid last year in the America COMPETES Reauthorization Act to 

enhance and expand federal support for the commercialization of 

new technologies by small businesses. Over the last year, the Administration has made significant strides through its Startup 

America Initiative to ensure that the Federal Government does not 

turn its back on struggling small businesses. These efforts are 

helping to provide small businesses with the tools and resources 

they need to innovate and transform promising technologies into 

marketable products. 
9 

This Subcommittee ought to be doing what it can to build upon 

the Administration’s efforts, and we should be taking our cue from 

international competitors who are developing and investing in 

groundbreaking programs that help small businesses innovate and 

commercialize new products. 

For example, this year, Germany is investing $545 million in cooperative research and development projects conducted collaboratively by a number of small manufacturers or by small manufacturers in collaboration with public research institutions. 

Again, Mr. Chairman, I want to thank you for holding this important hearing, and I look forward to hearing from our witnesses 

today on this topic. 

[The prepared statement of Ms. Edwards follows:] 

PREPARED STATEMENT OF RANKING MEMBER DONNA EDWARDS, 

SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION, 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, U.S. HOUSE OF

REPRESENTATIVES

Mr. Chairman, thank you for calling this hearing on small business creation and 

ways to spur innovation. And thank you to our witnesses for joining us here today 

to discuss the obstacles and challenges facing small businesses and what this Subcommittee can do to help. 

Mr. Chairman, I am also honored to join you on this Subcommittee as Ranking 

Member. I am certainly looking forward to working with you on the important 

issues that come before this Subcommittee. I believe that there is a lot of common 

ground on these matters, and I fully expect that we will be able to work together 

in a collaborative and bipartisan way to address them. 

I am certain that there isn’t a person in this hearing room today that does not 

recognize how important small businesses are to our economy. Small businesses, 

particularly new small businesses, spur innovation and create new jobs. According 

to the Small Business Administration, small businesses generated 65 percent of net 

new jobs over the past 17 years. As we continue our efforts to put our economy back 

on track, we should be committed to fostering the creation of small businesses and 

give them the support and resources they need to succeed. 

I am also certain that many of us here today would agree that there is much that 

can be done to reduce the regulatory burden on emerging small businesses by reviewing duplicative or outdated regulations, as well as, reducing bureaucracies that 

slow progress and add costs to businesses. 

I expect that many of us will also be united in our desire to create an environment 

for small business creation. We can support policies that provide additional tax incentives to foster growth. I have long championed providing incentives to companies 

that co-locate research and development with domestic manufacturing. These federal policies incentivize good behavior and spur home-grown innovation and 

progress. 

We must also ensure that our communities have the proper infrastructure and 

support to help businesses thrive. For that reason, I appreciate the shout-out from 

Mr. Rothrock to the I–270 corridor in his prepared remarks. The efforts and the critical investments the State has made to support and grow businesses have been recognized by Bloomberg News in its naming of the region as one of the top 10 places 

for startups. 

There are additional ways to support small business creation, including amending 

our intellectual property laws to spur greater innovation and updating our immigration laws so that small businesses will have access to the most skilled workforce 

possible and enable entrepreneurs from throughout the world to set up shop here 

in the United States. While there may well be a shared interest in tackling these 

sorts of matters, they unfortunately do not fall within this Subcommittee’s jurisdiction and are not items upon which we have the authority to legislate. 

Fortunately, there is a lot within this Subcommittee’s jurisdiction that can be 

done to support and foster the creation of new small businesses, and it is my hope 

that we will be able to focus today’s discussion on these issues. 

There are countless technologies that we use every day that can trace their origin 

back to federal research and development investments. The indisputable truth is 
10 

that without new discoveries, we won’t have new game-changing technologies or the 

small businesses to make and sell them. If we want a vibrant small business community that spurs innovation and creates new jobs, we simply must provide sufficient funding to our federal research agencies. If we turn our back on federal research and development, the medium- and long-term impacts on small business creation will be devastating. 

We must also do a better job of transferring new ideas and technologies out of 

federal or university labs and into the hands of startup companies in this country. 

I believe there are many opportunities for us to strengthen and improve federal 

technology transfer and build upon the lab-to-market efforts that are already underway within the Administration. Mr. Chairman, I hope that this is an issue that we 

can explore together in the months to come. 

Finally, we should be building upon the foundation this Committee laid last year 

in the America COMPETES Reauthorization Act to enhance and expand federal support for the commercialization of new technologies by small businesses. Over the 

last year, the Administration has made significant strides through its Startup 

America initiative to ensure that the Federal Government does not turn its back on 

struggling small businesses. These efforts are helping to provide small businesses 

with the tools and resources they need to innovate and transform promising technologies into marketable products. 

This Subcommittee ought to be doing what it can to build upon the Administration’s efforts. We should be taking our cue from our international competitors who 

are developing and investing in ground-breaking programs that help small businesses innovate and commercialize new products. For example, this year, Germany 

is investing $545 million in cooperative research and development projects conducted collaboratively by a number of small manufacturers or by small manufacturers in collaboration with public research institutions. 

The truth is that when our Federal Government has stepped up to the plate and 

taken an active role in private sector innovation—whether through the widely popular Small Business Innovation Research program or the Advanced Technology Program at NIST—we’ve witnessed great success. I am hopeful that we can begin to 

move past historical debates about industrial policy and picking winners and losers, 

and acknowledge that this is instead about ensuring that our country and our small 

businesses win in the global market. 

Mr. Chairman, thank you again for holding this important hearing. I look forward 

to hearing from our witnesses today on this important topic. 

Chairman QUAYLE. Thank you, Ms. Edwards. 

If there are Members who wish to submit additional opening 

statements, your statements will be added to the record at this 

point. 

At this time, I would like to introduce our witnesses, and then 

we will proceed to hear from each of them in order. 

Our first witness is Mr. Brink Lindsey, Senior Scholar in Research and Policy at the Ewing Marion Kauffman Foundation. Mr. 

Lindsey has conducted research and has written on the structural 

reforms needed to revive entrepreneurial innovation from formation and job creation. 

Next, we will hear from Mr. Julian Mann, Cofounder and Vice 

President of Product Development and Research at Skybox Imaging. Mr. Mann is an aerospace engineer who balances near-term 

product development and long-term technology strategy for his 

company. 

Our third witness is Mr. Ray Rothrock, a Partner at the venture 

capital firm Venrock. Mr. Rothrock is a nuclear engineer who has 

spent much of his career growing companies. 

Our final witness is Mr. Steve Dubin, former CEO of Martek Biosciences and Senior Advisor to DSM Nutritional Products. Early 

this year, Martek was inducted into the Small Business Innovation 

Research Hall of Fame in recognition of its success in research, innovation, and commercialization within the SBIR program. 
11 

Thanks again to our witnesses for being here this morning. As 

our witnesses should know, spoken testimony is limited to five minutes each. After all witnesses have spoken, members of the Committee will have five minutes each to ask questions. 

I now recognize our first witness, Mr. Brink Lindsey, for five 

minutes. 

STATEMENT OF MR. BRINK LINDSEY, 

SENIOR SCHOLAR IN RESEARCH AND POLICY, 

EWING MARION KAUFFMAN FOUNDATION 

Mr. LINDSEY. Chairman Quayle, Members of the Committee, 

thank you very much for the opportunity to appear here today. 

Today’s hearing is premised on a connection between encouraging new businesses and fostering innovation, and that premise is 

very well supported by the evidence. It turns out that a significant 

fraction of U.S. productivity growth comes from the entry and exit 

of firms, what the economist Joseph Schumpeter called ‘‘creative 

destruction.’’ Generally speaking, exiting firms are less productive 

than existing firms, which in turn are less productive than surviving new firms. According to a recent paper by the economist 

John Haltiwanger at the University of Maryland and research supported by the Kauffman Foundation, net entry of firms has contributed about 30 percent of recent total productivity growth in the 

manufacturing sector and virtually all productivity growth in the 

retail sector. New firms are thus the lifeblood of rising productivity, 

and, consequently, rising living standards. 

And when it comes to promoting prosperity through job creation, 

the role of new enterprises can hardly be overstated. According 

again to research from the Kauffman Foundation, there were only 

seven years between 1977 to 2005 in which existing firms created 

more jobs than they destroyed. So the bottom line is simple—without startups there would be no net job creation in the United 

States. 

Unfortunately for both the short-term prospects for a rebound in 

employment and the long-term prospects for productivity and 

growth, the creation of new businesses in America is in a slump, 

and that slump predates the Great Recession that began in 2008. 

According to that paper by John Haltiwanger I just mentioned, average annual gross job creation by startups has fallen from 3.5 percent of total employment in the 1980s to three percent in the 1990s 

to 2.6 percent since 2000, a 25 percent cumulative drop. With this 

slump has come a drop in overall gross and net job creation for the 

U.S. economy. 

The timing of this deterioration suggests that the problem is 

structural, not merely cyclical. That is, it is not merely linked to 

the current downturn. And structural problems call for structural 

solutions. Specifically, the ultimate answer to restoring both innovation and vigorous job growth lies in policy reforms that create a 

more favorable environment for the creation and growth of new 

businesses. Barriers to entrepreneurship need to be identified and 

systematically dismantled. 

This conclusion is further supported by my own research into the 

growth challenges confronting not only the United States but all 

advanced countries operating at the technological frontier. My find-
12 

ings can be summarized as follows: The available sources of 

growth—and the policy requirements of growth—change over time 

with a country’s advancing economic development. In particular, as 

countries get richer, they become ever more heavily dependent on 

homegrown innovation, as opposed to simply expanding existing activities or borrowing good ideas from abroad in order to keep the 

growth machine humming. And since new firms play an absolutely 

vital role in the innovation process, that means that removing barriers to entrepreneurship becomes increasingly important to maintaining economic dynamism and prosperity. 

In an effort to identify the kinds of policy reforms needed to reduce the structural barriers to entrepreneurship, innovation, and 

job creation, the Kauffman Foundation unveiled in July of this year 

a series of legislative proposals called the Startup Act of 2011. Let 

me review now the major elements of this plan: an entrepreneur 

visa along the lines of the revised Kerry-Lugar Startup Visa Act; 

green cards for foreign students when they receive so-called STEM 

degrees from U.S. universities; exemption from capital gains taxation for investments in startups held for at least five years; a 100 

percent exclusion from corporate income tax for qualified small 

businesses on their first year of taxable profit followed by a 50 percent exclusion in the subsequent two years; allowing shareholders 

of companies with market valuations under $1 billion to opt out of 

Sarbanes-Oxley requirements; higher fees for better, faster service 

at the Patent and Trademark Office to clear the backlog there— 

happily, I can say that this proposal was included in the recently 

enacted patent reform legislation; mandating that all federal research grants to universities be conditioned on universities affording their faculty members the ability to choose their own licensing 

agents rather than having to rely, as they do at present, on the monopoly of their own university’s technology licensing office; instituting a requirement that all major regulatory rules sunset automatically after 10 years; subjecting all proposed and existing major 

regulatory rules to a uniformed cost-benefit analysis; and finally, 

instituting monitoring of business climate in states and localities 

along the lines of what the World Bank’s ‘‘Doing Business’’ report 

does for different countries. 

The proposals contained in the Startup Act represent a kind of 

greatest hits collection produced—picked from a far broader set of 

promising reform ideas. Some of these other ideas can be found in 

a book published this year by the Kaufmann Foundation entitled 

‘‘Rules for Growth.’’ 

A great deal of additional work needs to be done on fleshing out 

what we can do to change the legal and regulatory environment, 

but in the current crisis, first steps are urgently needed. We believe 

that the proposals put forward in the Startup Act would make excellent first steps towards a better climate for firm formation, innovation, and prosperity. 

Thank you very much. 

[The prepared statement of Mr. Lindsey follows:] 
13 

1 John Haltiwanger, ‘‘Job Creation and Firm Dynamics in the U.S.,’’ National Bureau of Economic Research, May 2011, http://www.nber.org/chapters/c12451.pdf. 2 See Tim Kane, ‘‘The Importance of Startups in Job Creation and Job Destruction,’’ 

Kauffman Foundation Research Series: Firm Formation and Economic Growth, July 2010, 

http://www.kauffman.org/uploadedFiles/firm¥formation¥importance¥of¥startups.pdf. 3 E.J. Reedy and Robert E. Litan, ‘‘Starting Smaller, Staying Smaller: America’s Slow Leak 

in Job Creation,’’ Kauffman Foundation Research Series: Firm Formation and Economic Growth, 

July 2011, http://www.kauffman.org/uploadedFiles/job¥leaks¥starting-smaller¥study.pdf. 

PREPARED STATEMENT OF MR. BRINK LINDSEY, 

SENIOR SCHOLAR IN RESEARCH AND POLICY, 

EWING MARION KAUFFMAN FOUNDATION

Chairman Quayle, Ranking Member Edwards and distinguished Members of the 

Subcommittee, my name is Brink Lindsey, and I am a senior scholar in research 

and policy at the Ewing Marion Kauffman Foundation. I thank you for the invitation to appear at today’s hearing and share some perspectives on the crucial challenge of reviving new firm formation and restoring dynamism and prosperity to the 

U.S. economy. 

Today’s hearing is premised on a connection between encouraging new businesses 

and fostering innovation, and that premise is well supported by the evidence. Existing firms contribute much to innovation as well, but such innovation tends to be 

incremental: improvements in existing products or production processes or introduction of new products through pursuit of well-established R&D agendas. But when 

it comes to so-called discontinuous or disruptive innovation—the kinds of breakthroughs that topple the status quo and give rise to whole new industries—the 

agents of change tend to be new firms. Think FedEx, WalMart, Microsoft, Google, 

all of which were upstarts without any stake in the existing way of doing things. 

In this regard, the remarkable career of Steve Jobs at Apple is the exception that 

proves the rule. The reason he was so exceptional was precisely that he launched 

multiple business revolutions from the same company. That is a rarity. 

Economic research bears out the importance of new firms to America’s economic 

dynamism. It turns out that a significant fraction of U.S. productivity growth comes 

from the entry and exit of firms—what Joseph Schumpeter called creative destruction. Generally speaking, exiting firms are less productive than existing firms, 

which in turn are less productive than surviving new firms. According to a recent 

paper written by economist John Haltiwanger and supported by the Kauffman 

Foundation, net entry of firms has contributed about 30 percent of total productivity 

growth in the manufacturing sector and virtually all productivity growth in the retail sector. 1 New firms are thus the lifeblood of rising productivity, and, consequently, rising living standards. 

And when it comes to promoting prosperity through job creation, the role of new 

enterprises can hardly be overstated. According to research from the Kauffman 

Foundation, there were only seven years from 1977 to 2005 in which existing firms 

created more jobs than they destroyed. The bottom line is simple: Without startups, 

there would be no net job creation in the United States. 2

Unfortunately for both the short-term prospects for a rebound in employment and 

the long-term prospects for productivity and growth, the creation of new businesses 

in America is in a deep slump. And what is more, additional research from the 

Kauffman Foundation reveals that slump predates the Great Recession that began 

in 2008. Census data show that the number of new employer businesses created annually began falling after 2006, dropping 27 percent by 2009. Meanwhile, the average number of employees per new firm has been trending gradually downward since 

1998. And the pace of job growth at new firms during their first five years has been 

slowing since 1994. 3

A picture of even longer-term decline is revealed by the recent paper from John 

Haltiwanger mentioned above. Average annual gross job creation by startups has 

fallen from 3.5 percent of total employment in the 1980s to three percent in the 

1990s to 2.6 percent since 2000—25 percent cumulative drop. With this slump has 

come a drop in overall gross and net job creation for the U.S. economy. 

The timing of this deterioration suggests that the problem is structural, not merely cyclical. And structural problems call for structural solutions. Specifically, the ultimate answer to restoring both innovation and vigorous job growth lies in policy 

reforms that create a more favorable environment for the creation and growth of 

new businesses. Barriers to entrepreneurship need to be identified and systematically dismantled. 

This conclusion is further supported by my own research into the growth challenges confronting not only the United States but all advanced economies operating 
14 

4 Brink Lindsey, ‘‘Frontier Economics: Why Entrepreneurial Capitalism Is Needed Now More 

Than Ever,’’ Kauffman Foundation Research Series on Dynamics of Economic Growth, April 

2011, http://www.kauffman.org/uploadedFiles/frontier¥economics¥4¥06.pdf. 5 McKinsey Global Institute, ‘‘Growth and Renewal in the United States: Retooling America’s 

Economic Engine,’’ February 2011. http://www.mckinsey.com/mgi/publications/ 

growth¥and¥renewal¥in¥the-us/pdfs/. 

MGI¥growth¥and¥renewal¥in¥the¥us¥full¥report.pdf. 6 Kauffman Foundation, ‘‘The Startup Act: A proposal for new legislation aimed at jump-starting the U.S. economy through successful startups,’’ http://www.kauffman.org/uploadedFiles/ 

startup¥act.pdf. 

at the technological frontier. My findings can be summarized as follows: The available sources of growth, and the policy requirements of growth, change over time 

with a country’s advancing economic development. In particular, as countries get 

richer, they become ever more heavily dependent on home-grown innovation—as opposed to simply expanding existing activities or borrowing good ideas from abroad— 

to keep the growth machine humming. And since new firms play an absolutely vital 

role in the innovation process, that means that removing barriers to entrepreneurship becomes increasingly important to maintaining economic dynamism and prosperity. 4

To get more specific, our long-term growth prospects are dimmed today by shifting 

demographics. Over the course of the 20th century, U.S. growth rates got a steady 

and considerable boost from the ongoing rise of women in the workforce. As a result, 

the American labor force climbed from 56 percent of the adult population in 1900 

to 67 percent in 2000. This is a classic form of non-innovative growth: boosting inputs into the production process, as opposed to figuring out how to get more output 

from a given quantity of inputs. But now this source of growth is all but exhausted. 

The female labor force participation rate peaked in the 1990s and then began dipping well before the Great Recession. Meanwhile, male participation has been falling gradually for decades because of later entry into the workforce, longer retirements, and the aging of the population. Consequently, according to a study by the 

McKinsey Global Institute, growth in the workforce will add only 0.5 percentage 

points to the overall growth rate between 2010 and 2020—as compared to 2.0 percentage points in the 1970s. Because of these unfavorable demographics, McKinsey 

estimates that productivity growth will have to increase by almost 25 percent to 

keep real per capita growth going at its long-term historic rate of 1.7 percent a year. 

5

In an effort to identify the kinds of policy reforms needed to reduce structural barriers to entrepreneurship, innovation and job creation, the Kauffman Foundation 

unveiled in July of this year a series of legislative proposals called the Startup Act 

of 2011. 6 Let me review now the major elements of this plan: 

• Welcoming job creators to the United States. First, we propose an entrepreneur visa along the lines of the revised Kerry-Lugar Start-Up Visa Act. Initially, entrants would be screened for temporary visas based on either the outside capital they had attracted or revenues from U.S. sales they already had 

recorded. Permanent work visas (green cards) would be granted once these entrepreneurs had hired a minimum number of U.S. workers. Although the KerryLugar bill imposes a limit on the number of visas granted, we believe a strong 

case can be made for a visa without any caps. A second, mutually reinforcing 

idea would grant green cards to foreign students when they receive their socalled STEM degrees—degrees in science, technology, engineering and mathematics—from U.S. universities. Admittedly, most STEM graduates who are 

given visas will compete with U.S. workers for jobs. In the long run, however, 

given the greater propensity of immigrants to found businesses, it is likely 

many of the STEM graduates permitted entry now eventually will go on to form 

scale businesses that hire American workers. 

• Facilitating early-stage financing for new firms. The first proposal here is 

for a capital gains tax exemption for long-held investments in startups. The 

Small Business Jobs Act of 2010 currently provides such an exemption for investments in ‘‘qualified small businesses’’ (those with less than a $50 million 

valuation at the time of investment) held for at least five years. The exemption 

is currently due to expire at the beginning of 2012, but the National Advisory 

Council on Innovation and Entrepreneurship (NACIE), created by the Department of Commerce, has recommended a permanent exemption for these critical 

initial investments in startups. It is appropriate for this idea to be included in 

any comprehensive startup legislation. NACIE also has suggested a 100 percent 

exclusion on corporate taxable income earned by qualified small businesses 

(again, using the same test as for the proposed capital tax exemption) on the 
15 

first year of taxable profit, followed by a 50 percent exclusion in the subsequent 

two years. We believe additional incentives along these lines are worthy of support. 

• Facilitating access to public capital markets. The provisions of the Sarbanes-Oxley Act, especially the verification of internal controls embodied in Section 404 of the Act, impose a disproportionate burden on new, small companies 

and thus act as a barrier to going public. In 2010, Congress implicitly recognized this problem when granting a permanent exemption from the Section 404 

audit requirements for public companies with market capitalizations of less 

than $75 million. Any comprehensive startup legislation should go further, for 

a very simple reason: The best judges of whether the benefits of the SOX requirements outweigh their costs are the shareholders of the companies for 

whose benefit the law was enacted in the first place. Accordingly, rather than 

simply raising the market cap threshold for exempting smaller public companies from SOX’s requirements, the most logical SOX reform is to allow shareholders of public companies with market valuations below $1 billion to opt in 

to at least Section 404 compliance, if not to all of the SOX requirements. Companies whose shareholders do not elect to comply with SOX should have special 

designations in their exchange listings to denote this fact so that all shareholders, current and potential, are put on notice. 

• Accelerating the formation and commercialization of new ideas. Recently enacted patent reform legislation contains various provisions whose likely impacts on innovation and startups are not clear. We believe that at least 

one provision of the legislation—namely, higher fees for faster or better service—is very likely to be positive in its effects. To obtain patent protection for 

new ideas, inventors first must receive a patent from the U.S. Patent and 

Trademark Office (USPTO). In recent years, however, USPTO examiners have 

been unable to keep up with the pace of new applications, to the point where 

there is now a backlog of more than 700,000 patent applications at the office. 

There is an old saying that ‘‘justice delayed is justice denied,’’ and the same certainly applies to a patent regime that is too slow to process incoming patents. 

More than 30 years ago, Congress enacted the Bayh-Dole Act, granting recipients of federal research monies intellectual property rights in innovations discovered with the use of those funds. Since Bayh-Dole was enacted, faculty members typically have been required under their university contracts to use the 

university’s own technology licensing office (TLO) as the exclusive agent for licensing the rights to faculty-developed innovations either to the inventors themselves or third parties. In effect, university TLOs have become monopoly licensing agents and gatekeepers, preventing innovative faculty from using their own 

attorneys or other third parties, or even other university TLOs, to license and 

commercialize their innovations. The Federal Government can and should remedy this odd situation. One simple way to do so is to mandate that all federal 

research grants to universities be conditioned on universities’ affording their 

faculty members the ability to choose their own licensing agents. A university’s 

own TLO could compete in this new environment or, at minimum, provide informational services and mentoring to university faculty members. Licensing freedom for faculty inventors and true competition in innovation licensing would 

speed up the commercialization of faculty innovations, benefiting the 

innovators, their universities and our society. 

• Removing regulatory barriers to entrepreneurship. Because of their size, 

small and new businesses bear an especially heavy burden when complying 

with the multitude of local, State and federal rules that govern business behavior. To help alleviate this burden, the Startup Act contains two proposals for 

systemic reform of the federal regulatory process. The first is a simple requirement that all major rules (those with estimated costs of at least $100 million) 

sunset automatically after 10 years. Rules then would be allowed to lapse unless and until re-proposed and implemented (under new standards outlined 

next). This would regularly cleanse the books of inefficient and costly rules and, 

thus, barriers to business formation and growth for all businesses, including 

startups. The second proposal is for all major rules to be subject to a uniform 

regulatory review process. Under this screening procedure, no major rules 

would be implemented or maintained (after a sunset review) unless agencies 

can determine that the rules’ benefits outweigh their costs. Furthermore, the 

form of these rules should be such that the option chosen is the most cost-effective of the alternatives available. 
16 

In addition, the Startup Act offers a new mechanism for monitoring and thereby 

potentially curbing regulatory abuses and excessive costs at the State and local levels. Although the Federal Government should not step on the toes of local and State 

governments, it can facilitate healthy competition among these jurisdictions for favorable startup environments. Just as the World Bank has assessed the favorability 

of the legal environment toward business in different countries through its annual 

Doing Business reports, there should be some recognized entity that does the same 

(with a special emphasis on policies and practices affecting the formation and 

growth of new businesses) for each of the 50 States and all cities above a certain 

size. The Doing Business rankings have proven to be an important spur to regulatory reform around the world. A similar Doing Business project for jurisdictions 

inside the United States could have the same result. Both the government and private sector have roles in this effort. Because the underlying data are likely to be 

costly and difficult to gather, it could be useful and important to charge and fund 

one government agency with collecting the raw data that could be made available 

to the public, which would permit either nonprofit or for-profit rating systems to develop. 

The proposals contained in the Startup Act represent a kind of ‘‘greatest hits’’ collection picked from a far broader set of promising reform ideas. Some of these other 

ideas can be found in a book published this year by the Kauffman Foundation entitled Rules for Growth: Promoting Innovation and Growth through Legal Reform. 

That book was the product of an ongoing Kauffman Foundation initiative—the 

Project on Law, Innovation and Growth—that we hope will make further major contributions to our understanding of how to improve our legal and regulatory system 

to make it more conducive to entrepreneurial dynamism. 

Much work remains to be done, but in the current crisis, first steps are urgently 

needed. We believe the proposals put forward in the Startup Act would make excellent first steps toward reviving firm formation, innovation and prosperity. 

Thank you. 

Chairman QUAYLE. Thank you, Mr. Lindsey. 

I now recognize Mr. Julian Mann to present his testimony. 

STATEMENT OF MR. JULIAN MANN, 

CO-FOUNDER AND VICE PRESIDENT, PRODUCT 

DEVELOPMENT 

AND RESEARCH, SKYBOX IMAGING 

Mr. MANN. Mr. Chairman and Committee, thank you very much 

for the opportunity to be here this morning. 

In 2007, I was working as a student intern with NASA and realized that the billions of dollars we were spending building satellites 

as a Nation was largely driven by the antiquated set of technologies on which these satellites were based. But I had an epiphany. The technology that we were using to build academic satellites 

in our Stanford University research lab could have real impact on 

the way in which our Nation conducts business in space if only we 

could bring the necessary investment from the private sector to accelerate the development and commercialization of the technology. 

This idea became Skybox. 

I co-founded Skybox Imaging in January 2009 to revolutionize 

the use of satellite imagery in characterizing daily activity across 

the surface of our planet. At Skybox, we combine our own low-cost 

microsatellite design with the Silicon Valley approach to storing, 

processing, and disseminating massive quantities of imagery and 

derived data. We have raised $21 million in venture capital to date, 

have quadrupled in size over the last nine months and now directly 

and indirectly employ over 75 engineers across the United States. 

People talk about the decline in American competitiveness, but 

there is a real opportunity to make up that lost ground. We need 

more companies like Skybox, and I have three ways in which we 
17 

can facilitate that growth: improve the transfer of commercially 

viable IP out of research institutions and into the private sector, 

create mechanisms that assist startup companies in alleviating 

governmental regulations that are restricting innovation, and reforming acquisition practices to make the government a better customer to emerging ventures. 

As we started seriously investigating making Skybox a reality, 

Stanford provided a number of resources that were essential to our 

commercial growth. We were also encouraged to take the idea outside the university if we were serious about such commercialization. There was sound reason for this. Graduate students conducting steadily progressing, multiyear projects produce the majority of university research. The pace within new ventures is much 

faster. New ventures are successful due to their ability to rapidly 

change course in order to ensure convergence between product and 

market opportunity. This inherent lack of synchronicity between 

the two groups makes productive collaboration restrictively difficult 

to pursue. Instead, by transitioning the work from academia to industry when the focus shifts from fundamental research to commercialization, Stanford ensures alignment between the current 

stage of development and the environment in which said development is taking place. 

Stanford is particularly effective in providing programs that assist in facilitating this transition from courses designed to help entrepreneurial-minded researchers understand the business plan 

creation and venture capital financing processes to investor and advisor introductions provided through the extended Stanford network; a distinct pipeline exists to help educate and foster entrepreneurship within the university. 

There are numerous examples of this technology transition approach working extremely effectively—Google, Cisco, Hewlett Packard, Yahoo, Sun Microsystems, and VMware were all founded in 

this way. Skybox follows a long tradition in progressing from research to commercialization by leaving academia. 

Navigating burdensome federal regulations while simultaneously 

trying to build and grow a business can kill a new venture. As a 

commercial satellite imaging company, Skybox has felt this pain 

since the day of our founding. One set of regulations has been particularly restrictive: the International Traffic in Arms Regulations 

(ITAR). Beyond driving up our engineering costs by up to a factor 

of 10, of greater concern is how ITAR has reduced American competitiveness. Because the majority of the global market for small 

satellite technology is international, domestic suppliers restricted 

by the ITAR have fallen behind their foreign competitors. 

When we have approached these foreign suppliers with the idea 

of a deeper collaboration or co-development, they have largely declined. They are concerned that they will not be able to provide the 

resultant technology to their existing customer base if they partner 

with American companies. This is a real problem. Rather than having the government attempt to create what amounts to public venture capital, the government needs to consider how it can be a better customer to innovative and growing companies. 

Ultimately, the private sector is very efficient at identifying technologies that have real commercial viability and providing the cap-
18 

ital necessary to grow these technologies. Existing government acquisition models have not kept up with the pace of technological innovation and failed to express the market need in a way that is addressable by commercial product companies. Consequently, many 

innovative technology companies do not even consider doing business with the Federal Government because it is simply too costly 

to do so. Entrepreneurs are successful in the private sector because 

they find ways of delivering capabilities that do more with less. 

This is the same challenge that we face as a Nation today. 

Working with new ventures is dissimilar from working with 

other types of organizations. It requires alternate communication 

and outreach strategies, new acquisition methodologies, and differing types of governmental support. It also yields novel solutions, 

engages our Nation’s best and brightest innovators, and ensures 

that we remain the technological powerhouse that has been our enduring strength. We must find new ways of tapping the incredible 

resource that is our entrepreneurial base to solve the challenges 

that face our Nation. This change will not be immediate, nor does 

it require astronomical capital to support. With concentrated effort, 

advocacy, and partnership we can bring government and the technology innovation sector together for our mutual and enduring benefit. 

Thank you. 

[The prepared statement of Mr. Mann follows:] 

PREPARED STATEMENT OF MR. JULIAN MANN, 

CO-FOUNDER AND VICE PRESIDENT, PRODUCT DEVELOPMENT

AND RESEARCH, SKYBOX IMAGING

I co-founded Skybox Imaging Inc. to revolutionize the use of commercial satellite 

imagery in characterizing daily activity on the surface of our planet. At Skybox we 

combine our own low-cost microsatellite design with a Silicon Valley approach to 

storing, processing and disseminating massive quantities of imagery and derived 

data. Skybox was incorporated in January 2009, after a year of incubating the concept while conducting graduate research in Aeronautics & Astronautics at Stanford 

University. We received our initial venture investment led by Khosla Ventures in 

the summer of 2009, with a second financing round a year later, in which Bessemer 

Venture Partners joined our initial investors. To date Skybox has received 21 million dollars in venture capital financing. Throughout the process of conceptualizing, 

funding, and growing a high-tech venture, we have been the beneficiaries of several 

opportunities without which our progress to date would not have been possible; we 

have also faced numerous challenges along the way. 

As graduate students at Stanford, my co-founders and I were presented with a 

number of resources that were instrumental in the creation of the company. From 

courses designed to help innovators understand business plan creation and the venture capital financing process to numerous investor introductions provided through 

the extended Stanford network, there existed a distinct pipeline to help educate and 

foster entrepreneurship from within the University. That being said, the University 

was also very clear through its practices and actions that, should one be truly interested in pursuing an entrepreneurial venture, the proper venue for such activity 

was outside the University. 

Even with these incredible resources at our disposal, we still found substantial 

barriers preventing us from getting our company off the ground. The primary hurdle, and the one faced by all entrepreneurs, was gaining access to capital. Venture 

investors are experts at pattern recognition, they observe opportunity trends that 

have been successful in the past, and look for new investments that exhibit the potential to follow the same trend. As a result, it is incumbent upon the entrepreneur 

to find a way of demonstrating how his or her venture has the potential to follow 

one of these valued trends. For some companies this is easy, but we were attempting to convince investors surrounded by opportunities vying to be the next Facebook 

or Twitter to invest in a company building, launching and operating satellites. Even 
19 

with the myriad of introductions to venture capitalists that we received, it took 

months of restructuring the opportunity, and hundreds of meetings that ended in 

eloquent variations of ‘‘no,’’ to finally find a way of positioning our company as a 

good fit for venture capital. 

Although built upon a foundation of experience fostered within a university research setting, Skybox does not maintain any active research partnerships with universities. In general, it is very difficult for new ventures and universities to find productive methodologies for co-development of new technologies. Both entities are typically capital constrained, and often have competing goals with respect to commercialization of technology and publication of research. New companies are myopically 

focused on customer adoption and creating competitive barriers; universities are interested in maintaining a sustainable base of novel research. 

Beyond a difference in objectives and commonality in resource scarcity, direct collaboration between universities and new ventures is often challenged by a fundamental mismatch in operational tempo between the two types of organizations. 

Graduate students, conducting multi-year projects, produce the majority of university research. Conversely, the pace within new ventures is much faster. For example, our organization has grown almost 400% over the last nine months. This inherent lack of synchronicity between the two groups makes productive collaboration restrictively difficult to pursue. Based upon these challenges, and the manner in 

which Stanford made it clear to us that it was time to take our idea outside the 

University if we were going to pursue it further, it is my strong opinion that the 

proper time for separation from universities is when a new venture moves beyond 

the realm of fundamental research and into the world of commercialization. 

Numerous universities have programs, Stanford University’s Office of Technology 

Licensing, for example, that assist in fostering relationships between university researchers and organizations interested in the commercialization of their intellectual 

property. The difference between such programs and the aforementioned difficulties 

in collaboration is that these licensing programs are typically designed to facilitate 

the transfer of existing IP to external entities for commercialization rather than collaboration in research. There are numerous instances in which this type of intellectual property transfer has worked extremely effectively; Google and Yahoo were 

both founded through this mechanism, for example. Although Skybox is not based 

upon direct transfer of IP from the university, we exhibit the same transition from 

untargeted research to focused commercialization as we departed from academia 

into the world of entrepreneurship. 

It is similarly challenging for new ventures to engage and collaborate with larger, 

more entrenched companies. Large organizations often operate on similar time 

scales to universities, creating the same set of challenges addressed previously. Most 

start-up companies tend to be very flat organizations, lacking traditional organizational bureaucracies, and are characterized by their decisiveness and ability to 

change directions quickly. This nimbleness is one of the key reasons why startup 

companies are able to innovate. Larger, more established, organizations are often 

much more hierarchical and resistant to change. In fact, the type of rapid iteration 

and course-correction that is essential to new venture success is often characterized 

as high-risk activity when observed within large organizations. Consequently, this 

operational incompatibility makes it very difficult for startup companies to successfully collaborate with large organizations. 

A common thread found among most entrepreneurs in the technology sector is 

that they are working on technologies that are fundamentally transformative within 

their respective markets. Many, if not most, of these companies eventually come into 

conflict with existing regulatory environments. This stems from the fact that when 

the particular regulations were originally developed, the type of technology creating 

conflict was not even in the realm of consideration. As a member of the aerospace 

industry, Skybox has felt this pain since the day of its founding. 

As a commercial Earth observation satellite company, we must operate under 

NOAA, FCC and ITAR regulation. Each one of these has presented its own set of 

challenges in our growth. For example, in obtaining a license from the FCC to operate an Earth observation satellite, a company must post a five million dollar surety 

bond. While this may not be overly burdensome for a traditional imaging satellite 

program, which costs over 500 million dollars, our satellites are over an order of 

magnitude less expensive, resulting in greater than 10 percent of the overall program cost being consumed by a federal licensing bond. This is a very difficult challenge for a new venture being funded with equity dollars to weather. 

The second major example of burdensome federal regulation is ITAR. As a satellite manufacturing company, virtually everything done by our engineering organization is governed under the ITAR. Even the most benign mechanical bracket can 

only be manufactured by an ITAR certified machine shop. The vast majority of local 
20 

machine shops are not ITAR certified, and have no interest in becoming certified 

due to the high cost, burdensome documentation requirements, and increased liability. As a result we have an artificially reduced supply market, which has resulted 

in our manufacturing costs being increased by a factor of 10. Furthermore, these 

machine shops are typically very busy, which means we have a lead-time that is 

two to three times longer than if we were operating in a less regulated industry. 

Perhaps even more concerning is the fact that the ITAR regulations have had the 

unintended consequence of actually decreasing domestic competitiveness in the aerospace industry. As a relative newcomer to the industry, I have not seen the progression of the regulations over the years. What I have seen, however, is that when it 

comes to low-cost, transformative, satellite technologies, international developers 

have significantly surpassed the state of domestically developed technologies. A 

number of our high-performance specialty components are obtained from international suppliers. Additionally, when we have approached these suppliers about 

the possibility of co-development or manufacturing support, they have declined due 

to the fact that their primary customer base is outside the United States. International developers are rejecting the idea of deeper collaboration with American 

companies due to the concern that they will not be able to export the resulting technology to their existing customers due to ITAR; this is a real problem for American 

innovation. 

While I have highlighted a few specific regulations that have impeded growth at 

Skybox, it is important to remember is that there is no ‘‘one-size-fits-all’’ solution 

when it comes to reducing regulatory burden for entrepreneurs. What are needed, 

however, are mechanisms to help entrepreneurs recast these issues as blockers to 

innovation, with the ultimate goal of alleviating the regulatory burden. No one 

wants to inhibit innovation within our nation, yet it is incredibly expensive and difficult for entrepreneurs to interact with the Federal Government. At Skybox we 

have spent thousands of man-hours and hundreds of thousands of dollars solely trying to better understand the regulations that are relevant to us, and educate regulators about what we are doing and how we are doing things differently. We are 

the lucky ones; we are well financed and have comparatively strong ties to the Federal Government. Many other entrepreneurs are not so lucky. 

I was asked to recommend ways in which the Federal Government can promote 

new business creation and growth in technology innovation. Ultimately, the private 

sector is very efficient at identifying technologies that have real commercial viability 

and providing the capital necessary to grow these technologies. The best way that 

the government can assist in this process is become a better customer to innovative 

companies. Existing government acquisition models have not kept up with the pace 

of technological innovation. Traditionally, the government has explicitly defined the 

technologies that it is interested in obtaining, and the contractors build systems 

that meet exactly those requirements. This is not how the private technology sector 

does business. I am not advocating government acquisition of technology merely to 

support private research and development. I am intimating that entrepreneurs in 

the technology sector have made numerous capabilities for the private sector, which 

may also be applicable to the public sector. Many innovative technology companies 

do not even consider doing business with the Federal Government because it is simply too costly to do so. Entrepreneurs are successful in the private sector because 

they find ways of delivering capabilities that do more with less; this is the same 

challenge that we face as a Nation today. 

Working with new ventures is dissimilar from working with other types of organizations. It requires alternate communication and outreach strategies, new acquisition methodologies, and differing types of governmental support. It also yields novel 

solutions, engages our Nation’s best and brightest, and ensures that we remain the 

technological powerhouse that has been our enduring strength. We must find new 

ways of tapping the incredible resource that is our entrepreneurial base to solve the 

challenges that face our Nation. This change will not be immediate, nor does it require significant capital to support. With concentrated effort, advocacy, and partnership we can bring government and the technology innovation sector together for our 

mutual and enduring benefit. 

Chairman QUAYLE. Thank you, Mr. Mann. 

I now recognize Mr. Rothrock for five minutes for his testimony. 

STATEMENT OF MR. RAY ROTHROCK, PARTNER, VENROCK 

Mr. ROTHROCK. Chairman Quayle, Ranking Member Edwards, 

and the Committee, my name is Ray Rothrock and I am a General 
21 

Partner of the venture firm Venrock, one of the oldest ventures 

capital firms in the United States. Venture capitalists like myself 

are always committed to funding America’s most innovative entrepreneurs. I am also a member of the Board of Directors of the National Venture Capital Association. As the voice of the U.S. venture 

capital community, the NVCA advocates policies that support entrepreneurship, encourage innovation, and reward long-term investment. 

I am grateful for the opportunity to be here today and to answer 

your questions regarding the obstacles that entrepreneurs face in 

turning innovative ideas into successful companies and about what 

role public policy plays in that process. 

Venture capitalists work closely with entrepreneurs to transform 

breakthrough ideas and innovations into emerging growth companies that drive U.S. job creation, economic growth, and general 

well-being. The results of venture-backed companies is quite meaningful. Over 12 percent of all the private sector jobs in the United 

States today were originally venture-backed companies representing 22 percent of America’s GDP. This ecosystem is well established and works very well. Congress and the American public 

should continue to support it and embrace it if we want to keep 

America competitive. 

Regrettably, in recent years, certain obstacles have impeded company formation and the building process. Fortunately, we have the 

opportunity to address many of those obstacles immediately and inexpensively by making some specific and limited adjustments to existing policies. These obstacles and how we can remove them are 

described in detail in my written testimony. 

I would like to use my time now to discuss the challenges that 

entrepreneurs face within the context of basic R&D, the role that 

it plays in fostering and commercializing innovation. I will also 

touch on the role of technology transfer. 

Further to this point, it should be known that no great company, 

not one, was ever created overnight. It was started by one or two 

people working very hard for a very long time. It started with an 

idea, an invention, a new process, but always a small group of people. This story has been repeated over and over and over for decades if not for hundreds of years in this country. You get a great, 

successful country by first supporting the creation of companies 

and making the road to success as smooth as possible. If successful, 

that first R&D dollar will be leveraged by thousands, even millions 

of dollars of investment and possibly billions of dollars of economic 

activity. It does take time and it works. It works very well for the 

benefit of all Americans. 

There are many steps from innovation to the market. Let me 

speak first of R&D. Maintaining America’s global innovation advantage requires continued federal funding for basic research and 

development at every venue—national labs, universities, and all 

the agencies. Basic R&D is the lifeblood of innovation. It pays for 

the scientific breakthroughs from which innovative products, companies, and even whole industries are created. Without basic R&D, 

America’s innovation pipeline would dry up. That is why we must 

maintain funding for basic R&D and keep the barriers that entre-
22 

preneurs face in bringing those innovations out to the marketplace 

as low as possible. Here are four suggestions: 

• First, we need to continue to support programs of R&D, programs such as the Advanced Research Projects Agency at Energy, or ARPA–E, is paramount. ARPA–E exists today because 

of good work of this committee. I realize there is some skepticism by Members of the Subcommittee about the program, 

but at a time when every program is at risk for reduction or 

elimination, Congress should weigh the immense benefit of 

ARPA–E-like innovations against the relatively small financial 

cost and understand how those successful investments result 

in further investment by the private sector, which leads to 

great companies and results in what we all know as the economic multiplier effect. 

Our global competitors, for example, are putting billions of dollars into basic research to innovate in the clean energy area. 

These innovations ultimately generate economic growth in 

those geographies. We need that innovation here in America, 

and I can tell you with certainty that these investments will 

yield tremendous results in the coming years and decades 

ahead and they will help keep America competitive. Without 

R&D, great companies are simply not born. 

• Second, Congress should restore the eligibility for Small Business Innovative Research—or SBIR—grants to venture-backed 

companies. This exclusion, a recent innovation, works against 

the program’s objectives because it has prompted many companies to end promising research projects. This jeopardizes future 

scientific advances and job growth. By explicitly restoring that 

eligibility for venture-backed companies, Congress and the 

SBA can ensure the pool of SBIR grant seekers comprises the 

very best companies. This will maximize the impact of every 

SBIR dollar—again, a leverage. This catapults ideas to reality 

in launching potentially great companies. 

• Third, Congress can encourage the Department of Energy to 

award more DOE grants to innovators. Venture-backed companies are not excluded by law from earning DOE grants, but 

most of them get passed over in favor of large, multinational 

energy conglomerates. Rather than continuing and reinforcing 

the status quo, the DOE should redirect at least a portion of 

those pools of grants and loans to clean-tech innovators with 

the potential to create entire new industries here in the United 

States. These grants should focus on the future, not the past. 

• Fourth, we must ensure that all of our research institutions, 

all of them, have clear, transparent, and predictable processes 

for the transfer of innovation technology from the lab to the 

entrepreneur. Entrepreneurs face many burdens in starting a 

company. They have to raise the capital, they have to attract 

employees, they have to ultimately find customers who want to 

buy their products. Making it hard is just one more difficulty 

in that process. 

Every time those entrepreneurs go elsewhere to start their companies, even if the invention was developed here in the United 
23 

States, this country loses a very special opportunity to start the 

process of creating jobs and possibly a whole industry. If we seize 

these opportunities to reduce uncertainty and obstacles facing entrepreneurs, we can ensure that innovation and the economic 

growth that continues will continue to thrive in the United States. 

Furthermore, the unique public-private partnership between government-funded research institutions, entrepreneurs, and venture 

capitalists may be America’s greatest export. Therefore, we must 

do all we can to foster innovation in R&D. 

In closing, I want to personally thank you for the opportunity to 

discuss these important issues with you today and I am happy to 

answer your questions. I also wish to thank you for your service 

to our country in your capacity as Members of Congress. Thank 

you. 

[The prepared statement of Mr. Rothrock follows:] 

PREPARED STATEMENT OF MR. RAY ROTHROCK, PARTNER, VENROCK

Chairman Quayle, Ranking Member Edwards, my name is Ray Rothrock, and I 

am a General Partner of Venrock—one of the oldest venture capital firms in the 

United States. Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into 

emerging growth companies that drive U.S. job creation, economic growth, and general well-being. Venture capital in the United States has been supporting entrepreneurs for over 70 years. Beginning in the 1960s, venture capital was professionalized, leading to an industry today of 500 firms and $180 billion of invested 

capital. During this time the industry has mastered, if not perfected, the process 

of allocating scarce capital and human resources towards the most promising new 

opportunities for companies. Today, the results of the industry reach across the 

country and the globe, and they touch every aspect of our lives. Venture capital is 

now a global activity with every developing nation pursuing it at some level. Putting 

the impact of U.S. venture capital in quantitative terms: Venture-backed companies 

accounted for 12 million private sector jobs and $3.1 trillion in revenue in the 

United States in 2010, according to a 2011 study by IHS Global Insight. That equals 

approximately 22 percent of the Nation’s GDP. The U.S. venture capital industry 

has created this level of impact just in the last 50 years alone. 

I am also a member of the Board of Directors of the National Venture Capital 

Association. As the voice of the U.S. venture capital community, NVCA advocates 

for policies that encourage innovation and reward long-term investment. It shares 

industry-wide best practices with all its members, and participates in a number of 

forums, including testifying before Congress, to keep all beneficiaries of venture capital investment—including the public—apprised of the U.S. venture community’s efforts impact. 

I am grateful for the opportunity to be here today and to answer your questions 

regarding the obstacles that entrepreneurs face in turning innovative ideas into successful companies and what role public policy plays in this process. I will address 

those issues within the context of the role of basic research and development and 

technology transfer in fostering and commercializing innovation. I’d like to begin, 

however, with a broad overview of some factors driving uncertainty for entrepreneurs today. 

Overview: Entrepreneurs 

Being an entrepreneur and starting a company are very difficult. Within reason, 

the United States should do everything it can to foster entrepreneurial activity and 

to reduce the friction to success. Every company ever created began its life as the 

idea of a single person or a small team of people. This is true of Henry Ford, Thomas Edison, Thomas Watson, Fred Smith, Steve Jobs and Steve Wozniak, and on and 

on. These innovators were able to grow their ideas into some of America’s most successful companies over time. Following these models, entrepreneurs have created 

entire new industries, including computers, electronics, pharmaceuticals, and telecommunications. These industries advanced the United States in every way. 

Building a business around an innovative product spurred by a novel scientific 

discovery involves an enormous amount of risk—for the entrepreneur and for inves-
24 

tors. This risk persists through every stage of the company’s development, but is 

particularly acute at the earliest stages. Failure is more common than success. For 

this reason, innovators crave any certainty and stability they can find when deciding if, when, and how to build a company out of a scientific breakthrough. In colloquial terms, the fewer number of moving parts, the better chance of success. Presently, a number of factors are working against entrepreneurs in this regard. 

One of the most significant sources of uncertainty for entrepreneurs and investors 

remains the current volatility in the U.S. economy and capital markets, and the 

sluggishness of their recovery in the wake of the Great Recession. As someone who 

speaks with entrepreneurs on a daily basis, I can tell you that the prospect of building a business from scratch—especially one based on a novel and unproven innovation—seems especially daunting under current conditions. I recognize that opinions 

may differ among the Committee Members regarding the extent to which public policy can mitigate these conditions, but as long as the adverse conditions persist, or 

the lack of action to remedy those adverse conditions persists, so too will the level 

of uncertainty facing entrepreneurs. This will result in fewer new companies being 

started. If such companies are not started, they will never have the chance to be 

great. 

In addition to the challenges created by current economic conditions, a number 

of policy issues are also generating obstacles for entrepreneurs looking to build innovative, emerging growth companies. In these cases, we have the opportunity to help 

reduce uncertainty for entrepreneurs and encourage the innovation they generate. 

Fortunately, none of them require increased government spending, but they do involve a closer look by government and more understanding on the part of those people making the laws and enforcing them. 

Capital Markets 

We have an opportunity to reconnect privately held emerging growth companies 

with capital from the public markets, which they need in order to continue to grow 

to be great. In the early 2000s and even recently, well-intended and appropriate regulations have been enacted with the goal of policing large public companies and protecting investors. In the wake of Enron and WorldCom, these were important acts 

that have benefited many. Unfortunately, these regulations have had an unintended 

negative impact by increasing the friction for small emerging growth private companies seeking access to public capital. In short, it now costs more and takes twice 

as long for young companies to go public. This has produced negative impacts on 

U.S. job creation—given that 92 percent of a company’s job growth occurs after its 

initial public offering—and on the health of our entire capital markets system. Rather than explore this issue in depth with the committee today, I’ll recommend to you 

a recently released report entitled Rebuilding the IPO On-Ramp, which was produced by my colleagues across the emerging growth company ecosystem at the request of Secretary Geithner and others. The report provides a comprehensive analysis of the U.S. IPO crisis and provides policymakers with a clear roadmap for reconnecting emerging growth companies with the public capital they need to create 

jobs and grow their businesses. The report is included with my submitted written 

testimony. 

[The report may be found in Appendix 2.] 

Regulatory Review 

We have opportunities to reduce uncertainty for entrepreneurs who must seek 

regulatory approval for their innovative new products. Here, the specific situation 

at the U.S. Food and Drug Administration provides an illustrative example. For decades, the FDA provided a well-organized method for evaluating new drugs and devices intended for the American market. During this time, entrepreneurs and venture capitalists worked with FDA to bring amazing health care benefits to our citizens and ultimately the world. The FDA function was understandable, predictable 

and allowed for the proper vetting of risk by the entrepreneur and investors going 

forward. This is a critical point, because it enabled entrepreneurs to judge—in a 

timely fashion—whether to continue to raise private capital for more development 

in the event that the proposed drug or device had merit, or avoid wasting further 

time and money if the product idea was not suitable. Today, for most entrepreneurs 

and investors, the FDA review process has grown too cumbersome and unpredictable—with the later being the most critical concern. The result has been fewer 

groundbreaking treatments and technologies available to patients, and an exodus of 

innovators and investment to foreign shores, where the regulatory path to market 

is more predictable. That’s why my colleagues at the NVCA and I support reforms 
25 

to the FDA review and approval process that clarify the path to market, increase 

transparency at every stage, and restore the balance between the benefits and the 

risks of new therapies and technologies for seriously ill patients. If the situation is 

left unaddressed, critical therapies and technologies will not be funded and therefore 

will not reach the patients that need them; those that are funded may not be 

brought to market in the United States, which will cost American jobs and our global competitiveness in an industry we have led for more than 40 years. It would be 

a tragedy not to address this problem quickly and effectively. We must restore an 

otherwise well-established and effective FDA for the benefit of entrepreneurs and 

patients alike. 

Immigration 

We have an opportunity to reduce uncertainty for entrepreneurs through legal immigration reform. Over the last decade, it has become increasingly difficult for foreign-born entrepreneurs and highly skilled workers to enter the United States and 

remain here, despite their enormous contributions to American innovation and economic growth throughout our history. This uncertainty with regard to their immigration status is compelling many of the foreign-born students who earn their degrees and who have conducted their breakthrough research at U.S. institutions, 

often with U.S. research dollars, to return to their native countries to work and 

found new companies, as opposed to doing so here. We can reverse this trend by 

streamlining the pathway to Green Cards for foreign-born graduate students who 

wish to remain in the United States upon completion of their studies. The proposed 

Start-Up Visa Act would also help support foreign-born entrepreneurs who wish to 

innovate and build their companies here in the U.S. It would provide a temporary 

Green Card to entrepreneurs who raise venture capital investment to start a business. After a period of time, the Green Card will become permanent if they can 

show that they have created jobs in the U.S. or that they are continuing to grow 

their company by raising additional capital. This small program would be a breath 

of fresh air to budding foreign-born entrepreneurs and a great first step in keeping 

these innovations and the talent which created them in the U. S. 

Basic Research 

Finally, we have an opportunity to encourage entrepreneurs and foster innovation 

by maintaining our national commitment to funding basic research and development 

activities at government-funded labs and universities. These institutions remain the 

germination points for the breakthrough ideas that can be commercialized by entrepreneurs and venture investors. I believe that how we get from point to point—from 

research to breakthrough to the transfer of that breakthrough from the lab to the 

entrepreneur—merits closer examination today. That’s where I will now focus my 

remarks. 

Fostering Innovation Through Basic Research and Development 

Maintaining America’s global innovation advantage requires continued federal 

funding for basic research and development. Basic R&D is the lifeblood of innovation because it produces the scientific breakthroughs from which innovative new 

products can be developed and around which new companies can be built. Without 

basic R&D, America’s innovation pipeline would dry up. 

For decades, the public sector of the U.S. has conducted such R&D through federal institutions and agencies such as the National Institutes of Health, the National Academies of Sciences and the Defense Advanced Research Projects Agency, 

or DARPA. The Federal Government has also funded research at universities across 

the U.S. through grants, scholarships and the like. This unique public-private partnership has delivered countless innovations to the American public. For example, 

the Internet grew from DARPA research on a ‘‘best-efforts’’ communication infrastructure. Google was the result of government-funded Ph.D. research on search and 

taxonomy of language at Stanford. Sun Microsystems was government funded Ph.D. 

research on computer architectures at Stanford and computer operating systems at 

U.C. Berkeley. Genetech was formed from the invention and understanding of recombinant DNA, which was originally developed at U.C. San Francisco. These and 

many many more are just a few of the examples of successes have generated a decisive competitive advantage to the U.S. economy. 

To preserve this advantage, the U.S. must maintain its commitment to funding 

basic research at its labs and universities. That means keeping current funding levels where they are—even in the face of deficit reduction. In difficult economic times, 

budgets for basic R&D may look like easy targets, but future costs in lost innovation 
26 

and economic growth are nearly impossible to estimate. But the costs in jobs, economic benefits, and societal well-being are easily imagined when you consider if 

Sun, Google, and Genetech were never created. R&D dollars are the highest multiplier dollars in terms of their ability to attract additional financing over the long 

term, once inventions are proven out. 

In addition to maintaining current general funding levels, we have the opportunity to provide certainty for entrepreneurs and foster innovation through three 

specific initiatives: 

• First, thanks to the good work of this Committee, the Advanced Research 

Projects Agency–Energy, (ARPA–E) program is finally enacted. Congress established ARPA–E in 2007 under two broad rubrics. First, America’s dependence 

on foreign fossil fuels cannot continue at its current rate. Second, the nation 

that grows its economy with clean energy will lead the global economy of the 

21st century. Those two constructs remain true today. Presently, our global 

competitors are putting billions of dollars into basic research to develop innovative clean technologies. Those innovations will generate economic growth. We 

need that innovation and that growth to occur here in America. If Congress fails 

to commit to fully funding ARPA–E over the long term, the United States risks 

ceding its technology leadership position to foreign countries and potentially operating at a competitive disadvantage for decades. I want to thank this Committee for its leadership and commitment to supporting ARPA–E. At a time 

when every program is at risk for reduction or elimination, ARPA–E survived 

floor votes to cut funding and was able to increase its appropriation. I am very 

familiar with the work that ARPA–E does under the leadership of Director 

Majumdar, and I can tell you with certainty that this investment will yield tremendous results in the coming years and help to keep America competitive. 

• Second, Congress should restore eligibility for Small Business Innovative Research, or SBIR, grants to venture-backed companies. Congress created the 

Small Business Innovation Research (SBIR) program in 1982 to stimulate technological innovation and to encourage small businesses to meet federal research 

and development needs. Today, however, the Small Business Administration’s 

interpretation of the SBIR eligibility requirements excludes companies with majority venture funding—a complete reversal from the program’s original intention and practice, which had worked well for decades. This exclusion works 

against the program’s objectives, as it has prompted many such companies to 

discontinue promising basic research projects—jeopardizing future scientific advances and job growth. By explicitly restoring eligibility for venture-backed companies, Congress and the SBA can ensure that the pool of SBIR grant seekers 

comprises the very best U.S. companies, which in turn will maximize the impact 

of every SBIR dollar. 

• Third, Congress can encourage the Department of Energy to award more DOE 

grants to innovators. Venture-backed companies aren’t excluded by law from 

earning DOE grants and loans, but most get passed over in favor of large, multinational energy conglomerates. Rather than reinforcing the status quo, the 

DOE should redirect existing pools of grants and loans to clean-tech innovators 

with the potential to create entire new industries here in the U.S. These grants 

should focus on the future—not the past. 

Again, I want to point out that these initiatives do not require additional government spending. Rather, these programs should be reexamined or reprioritized so 

that they help enhance the innovation pipeline and sources of ideas and companies. 

This requires careful analysis and rethinking of many government sponsored activities. 

Technology Transfer: From Lab to Market 

One of the first critical steps on the path from scientific breakthrough to marketplace is the transfer of an innovative technology from the laboratory where it was 

developed to the entrepreneur who will develop a commercial product from it and 

build a new company to market it. 

Here again, the entrepreneur seeks a clear, transparent, and predictable process 

to help minimize uncertainty and mitigate risk. Most research institutions have a 

technology transfer apparatus in place and an office dedicated to managing it. Typically, this apparatus comprises three functions: record-keeping and compliance, patenting and licensing, and commercialization support. The first function is fairly selfexplanatory. The second, patenting and licensing, involves managing the institution’s patent portfolio and prosecuting to completion its patents and license agreements. The third, commercialization support, aims to spin off innovative tech-
27 

nologies into startup companies that can apply the technology to develop new commercial products and bring them to the marketplace. My firm has participated in 

scores of these transfers from universities from all over the United States. 

The essence of a successful transfer from lab to market is about the entrepreneur 

who will commercialize the innovation. Some university transfers involve the graduate student or professor who made the research breakthrough, but this is rare. 

Much more often, the technology transfers to an entrepreneur with some business 

experience. This entrepreneur, like all the others described in this testimony, faces 

all the burdens and risks of starting a company, raising capital, attracting employees, and ultimately finding customers. Every time those entrepreneurs go elsewhere 

to start their companies, even if the invention was developed within the U.S., then 

this country loses a very special opportunity. 

Growing New Venture Ecosystems 

Throughout my testimony, I have described the crucial role that research institutions play in fostering innovation. They are also the key catalysts in building venture capital ecosystems like the ones in Silicon Valley, Boston’s Route 128 Corridor, 

and the Research Triangle in North Carolina. That’s because most successful venture capital hubs begin as communities of innovators. 

These innovators are usually drawn together by a top-flight research university, 

government laboratory or academic community. An innovative company with venture-capital roots—like Dell, in Austin, Texas, or Medtronic, in Southeastern Minnesota, for example—can often draw talent to the community, too. These companies 

regularly spin out new ideas and companies from existing operations. They also provide a pool of management talent. 

Often, these communities coalesce around a certain niche—like semiconductors at 

the birth of the Silicon Valley. Other examples include Tennessee with health care 

services and Orange County, California, with ophthalmology, as well as the biotech 

industry that thrives in the I–270 corridor in Congresswoman Edward’s state of 

Maryland, and the energy and high-tech innovations that are coming from Congresswoman Biggert’s home state of Illinois as a result of the partnership between 

Argonne National Lab, the university, and the local business community. Concentrating on these niches creates a virtuous circle that spurs research and innovation, 

draws more talent to the startup companies and the local universities, and attracts 

more capital to the area. All of this generates economic growth in the region. 

These innovators become entrepreneurs when they try to build their ideas into 

successful businesses. This can only happen consistently within a region if certain 

conditions are present. As explained earlier, there must be a sound mechanism for 

transferring technological innovations from the research institutions to the entrepreneur who will guide them to market. An educated workforce with the skills to 

fill high-tech jobs is also important, as is a robust network of lawyers, accountants, 

and other business professionals to help with networking, intellectual property protection, securities and IPO registration compliance, and hiring issues. In addition, 

the region must have an infrastructure that can support growing companies. That 

means efficient local and regional transportation systems, affordable housing, quality schools, and vibrant cultural and social scenes. 

Government and civic support is also essential. This starts with favorable tax policies, common-sense regulatory structures and encouragement of basic research. 

State and local initiatives that reward emerging growth companies through tax incentives also make a significant difference. 

These are the ingredients that make for successful venture capital hubs like Silicon Valley. I want to emphasize that venture capital is just one participant in such 

ecosystems. We do not create them from scratch. States should understand that 

growing such an environment is a long-term endeavor that requires local leadership. 

However, I’m sure that those States that have succeeded will tell you that the economic benefits are worth the effort. 

Conclusion 

Entrepreneurs face many difficult hurdles in starting and building their companies. It is hard enough to identify an invention with product potential, then attract 

capital from a venture capitalist in order to build the invention into a great product, 

and then ultimately sell that product to a customer who will actually pay for it. Uncertainty regarding regulatory outcomes or a lack of transparency, along with 

sweeping financial regulation created from good intentions but adversely effecting 

the startup company ecosystem, have prevented more than one good company from 

growing into a large, industry-leading company. The legal obstacles for foreign-born 
28 

entrepreneurs to remain in America after being educated here have also hindered 

our economic growth. These are extra—and in some cases, costly—burdens that either reduce the probability of success for well-meaning entrepreneurs or drive them 

away entirely. While some of these issues fall beyond our control, others present immediate opportunities for action on the part of Congress and local communities. The 

policy measures outlined above are not extensive. On the contrary, they are inexpensive to implement and would have an enormous multiplier effect on economic activity. Thus, if we seize these opportunities to reduce uncertainty for entrepreneurs, 

we can ensure that innovation and the economic growth it generates will continue 

to thrive in the U.S. Working with entrepreneurs, I, as a venture capitalist, have 

‘‘engineered’’ more than 50 companies in the last 23 years. There is no shortage of 

enthusiasm for entrepreneurship or invention in America. As I said, venture capital 

was professionalized here 50 years ago; it may ultimately be America’s greatest export. Therefore, we must do all we can to foster innovation with R&D support and 

keep the barriers to commercializing and investing in that innovation low. Most of 

all, we must ensure that America continues to be the destination of choice for anyone around the world with a great idea. I am confident that we can do so. 

In closing, I want to personally thank you for the opportunity to discuss these important issues with you today. I am happy to answer any questions you may have 

about venture capital or the business of building companies from scratch. And, I 

wish to thank you for your service to our country in your capacity as Members of 

Congress. 

Chairman QUAYLE. Thank you, Mr. Rothrock. 

I now recognize our final witness, Mr. Dubin, for his testimony. 

STATEMENT OF MR. STEVE DUBIN, 

FORMER CEO, MARTEK BIOSCIENCES, 

AND SENIOR ADVISOR TO DSM NUTRITIONAL PRODUCTS 

Mr. DUBIN. Thank you, Chairman Quayle and Members of the 

Committee, for allowing me to talk about the Martek Biosciences 

appropriations story, and I also want to thank Congresswoman Edwards, who was kind enough to visit our facility some months ago 

in Columbia, Maryland, and learn more about us. 

I have been affiliated with Martek since its founding in 1985, 

first as a venture capitalist that helped arrange Martek’s first 

round of financing and then as an employee for the last 19 years, 

ultimately serving as CEO from 2006 until last month. 

Martek is headquartered in Columbia, Maryland, and our R&D 

facilities are there. We have a research office in Boulder, Colorado, 

manufacturing facilities in Winchester, Kentucky, and Kingstree, 

South Carolina, and a consumer products business in Hartford, 

Connecticut. We were founded by five visionary scientists in 1985, 

and from those first five employees grew to become the world’s 

leading producer of sustainably produced microbially sourced 

omega-3 and omega-6 fatty acids for human and animal health. 

Martek’s nutrients, which are important for infant development 

and brain and eye and heart health for adults, can be found in infant formula products, prenatal vitamins, supplements, and food 

and beverage products by some of the leading consumer products 

companies around the world. 

So what started out as a five-person R&D company 26 years ago 

looking at algae and other microbes as potential sources of valuable 

products today has annual revenues of almost 500 million, employs 

over 600 people and also an additional 100 people at BSM’s nutritional production plant in Belvedere, New Jersey. DSM is one of 

the leading materials and life sciences companies in the world. 
29 

They have been our supplier of our omega-6 fatty acids and ultimately purchased Martek this past February. 

In addition to our nutritional product portfolio, our technology 

platform has expanded over the years to include a partnership with 

BP for the development of new biofuels from microbial sources. We 

have a partnership with Dow AgroSciences to develop BHA out of 

seed oils, and also we are in the process of developing new vaccine 

technologies that hopefully will result in faster production of vaccines when needed at much lower costs. 

It all sounds great, but it took a lot of factors and a combination 

of factors and great patience to enable Martek to become commercially successful. It took the combination of talented, hardworking 

people; outstanding technology; university, Federal, State Government support; and access to capital, over $400 million over the 

years. That kind of support is needed even more today than what 

we got because capital is less patient than it was in 1985. 

I remember when Martek started the company was just five scientists, great technology, and a dream. Martek took nine years to 

introduce its first significant product and 17 years to become profitable. It took early research contracts from NASA to help prove out 

some of our enabling technology and acceptance in the University 

of Maryland’s Business Incubator to get the company’s technology 

enough credibility to enable us to raise our first 1.5 million in venture capital. It took over 30 SBIR grants totaling over $5 million 

to fund the early research that investors would not fund, and that 

validation of our technology enabled us to raise three additional 

rounds of venture capital. 

I am 100 percent certain that if any one of those factors was 

missing—the NASA support, the acceptance by the University of 

Maryland to their Incubator, the SBIR grants, a long-term patient 

capital from our investors, and the founders and employees that 

worked so hard for so many years when oftentimes we were a paycheck or two away from shutting our doors—we wouldn’t have survived. And those over 700 high-paying jobs would not exist; our 

health-promoting products would not exist to be benefitting society. 

So government and university support of early-stage research is 

needed, I think, even more today than when we started. Investors 

are more short-term oriented, and I doubt we could have raised the 

first run of venture financing if we had to start over right now. In 

any case, early-stage research is rarely funded by venture or angel 

investors, and many early-stage life sciences companies’ existence 

depends on government- and university-supported research. This is 

especially true now when the current economic dynamics of venture 

funds creates larger and larger funds that are less and less able 

to provide early-stage funding. Large funds cannot efficiently put 

small amounts of money to work and use it to return the money 

to investors within a 10-year lifecycle of a typical venture capital 

limited partnership. This is not good for early-stage companies that 

are seeking smaller initial rounds of financing, and that especially 

impacts life sciences companies that just take so many years to create an exit for investors. 

So I believe more life sciences companies are in danger of running out of money today than I have seen in my 26 years in the 

business. The lack of early-stage funding will not only hurt employ-
30 

ment in an important industry but will hurt us all down the road 

because important new discoveries will not be made, diseases will 

not be cured, jobs will not be created, and the financial spillover 

from these companies will not happen. 

Therefore, government support for early-stage research is now 

more vital than ever so that many more Marteks can be created 

in the future. Thank you. 

[The prepared statement of Mr. Dubin follows:] 

PREPARED STATEMENT OF MR. STEVE DUBIN, FORMER CEO, 

MARTEK BIOSCIENCES, AND SENIOR ADVISOR TO DSM NUTRITIONAL PRODUCTS

I would like to thank Honorable Ben Quayle, Chairman of the Subcommittee on 

Technology and Innovation, House Committee on Science, Space and Technology, 

Ranking Member Donna Edwards, and Members of the Committee, for holding this 

hearing today and for allowing me to share my perspective on promoting new business creation and growth in innovative sectors. 

Introduction 

My name is Steve Dubin, and I served as the CEO of Martek Biosciences, a 

biotech company based in Columbia, Maryland, from July 2006 until a few weeks 

ago. My involvement with Martek began in 1985 while I was serving as Vice President of Suburban Capital Corporation, the venture capital subsidiary of Suburban 

Bank (now part of Bank of America). It was in that capacity that I helped lead 

Martek’s initial round of institutional venture financing in 1986. I joined Martek as 

an employee in 1992, initially as CFO and General Counsel, and went on to fill a 

variety of additional roles there, including Treasurer, Secretary, and Senior Vice 

President of Business Development. In 2003, I was appointed President of Martek, 

and in 2006 I assumed the role of CEO. 

When I was first introduced to Martek, Martek was, by every definition, a startup. It consisted of five talented founding Ph.D.s with a fantastic idea, and a foundation of technology to drive that idea forward—and a long, difficult road ahead. 

Today, Martek Biosciences Corporation (now DSM Nutritional Lipids) is a leader in 

the innovation, development, production, and sale of high-value products from microbial sources that promote health and wellness through nutrition. The company’s 

technology platform consists of its core expertise, broad experience, and proprietary 

technology in areas such as microbial biology, algal genomics, fermentation, and 

downstream processing. This technology platform has resulted in Martek’s development of a number of products, including the company’s flagship product, life’sDHA©, 

a sustainable and vegetarian source of omega-3 DHA (docosahexaenoic acid) important for brain, heart and eye health throughout life for use in infant formula, pregnancy and nursing products, foods and beverages, dietary supplements and animal 

feeds. The company also produces life’sARA© (arachidonic acid), an omega-6 fatty 

acid, for use in infant formula and growing-up milks. Martek’s life’sDHA©, along 

with life’sARA©, is found in 99 percent of U.S. infant formulas. Both fatty acids are 

also added to infant formulas sold in over 80 countries and, subsequently, have been 

consumed by more than 64 million babies worldwide. In addition, a range of supplements and functional foods containing life’sDHA© for older children and adults continues to hit the market both in the U.S. and abroad. Martek’s subsidiary, Amerifit 

Brands, develops, markets and distributes branded consumer health and wellness 

products and holds leading brand positions in each of its three key product categories. Martek’s technology platform has also made it a sought-after partner on a 

range of groundbreaking projects in process, including the development of 

microbially-derived biofuels, new, faster, and less expensive ways to make vaccines 

and the development of DHA-containing oilseeds. 

Factors in Martek’s Success 

Finding private financing for early stage research was extremely difficult in 

Martek’s early days, and is even more difficult today, but since Martek’s inception, 

a range of government supported and funded programs—both at the state and federal level—have played a critical role in Martek’s survival and growth. This support 

was leveraged to raise over $400 million from the capital markets to enable Martek 

to reach its current state. Without programs like the Small Business Innovation Re-
31 

search Grants, the University of Maryland Technology Advancement Program, and 

even NASA, I would not be standing here today to share our story of success. 

NASA 

Martek had its start in a NASA program of the early 1980s known as CELSS 

(Closed Environment Life Support System). Under NASA funding, Martin Marietta 

Laboratories, Inc., in Baltimore, Maryland, experimented with the use of microalgae 

as a food supply, a source of oxygen, and a catalyst for waste disposal on future 

human-crewed planetary missions. When Martin Marietta decided to divest its life 

sciences businesses, the scientists involved in this project negotiated with Martin 

Marietta to take what they had learned with them and start their own company. 

The result was Martek Biosciences, founded in 1985. 

Soon after, Martek identified a strain of algae, Crypthecodinium cohnii, that is 

a naturally high producer of docosahexaenoic acid (DHA), an omega-3 fatty acid that 

plays a key role in infant brain and eye development as well as in maintaining 

brain, eye, and heart health throughout life. Martek then developed and patented 

a sustainable method of deriving DHA-rich oil from the algae. Continuing its exploration of infant nutrition, Martek also developed a patented process for developing 

arachidonic acid, ARA, another fatty acid important to infant health, from 

Mortierella alpina, a fungus. These innovations led to Martek’s first license agreement in 1992 for the use of Martek’s proprietary blend of DHA and ARA in infant 

formula. In 1993, Martek went public after entering into similar license agreements 

with two additional leading infant formula companies. Today, nearly every infant 

formula product sold in the U.S. contains these ingredients, as well as infant nutrition products found in over 80 countries around the world, and millions of infants 

benefit from these products each year. 

In 2009, Martek was inducted into the Space Foundation’s Hall of Fame. The 

Space Foundation, in cooperation with NASA, honors organizations and individuals 

who transform technology originally developed for space exploration into products 

that help to improve the quality of life here on Earth. Martek is one of just a few 

dozen technology companies that have been inducted since the Hall of Fame was 

founded 20 years ago, and Martek’s evolution from a NASA funded-project to a successful, independent company providing important, beneficial products to consumers 

worldwide is often heralded as the ideal example of practical innovation born from 

the Space Program. 

Small Business Innovation Research Funding 

In many ways, Martek is also an ideal example of how SBIR funding can be the 

foundation of success for early-stage companies. For the first eight years of our existence, SBIR grants were our lifeblood—Martek received more than 30 SBIR 

awards from DOD, DOE, HHS, USDA, and NSF totaling more than $5 million. 

This funding allowed us to more fully develop our platform of technology and, perhaps more importantly, provided a measure of validation of our technologies, allowing us to demonstrate our capabilities and secure additional venture capital funding 

and strategic partners. SBIR funding not only helped us to keep our doors open in 

the early years, it also provided the foundation of credibility necessary to convince 

investors that our company was a sound investment.Earlier this year, Martek was 

inducted into the inaugural Small Business Innovation Research (SBIR) Hall of 

Fame in recognition of its success in research, innovation and commercialization 

within the SBIR program. 

Technology Advancement Program (TAP) and Maryland Industrial Partnerships (MIPs) 

Martek is a graduate of a business incubator, the Technology Advancement Program at the University of Maryland at College Park, a program of the Maryland 

Technology Enterprise Institute (Mtech.) 

Incubators typically offer office space at market or lower rates, along with shared 

conference and lab facilities, and offer business development and management programs to accelerate their startups’ growth. 

Martek came to the program with a number of notable characteristics, including 

a talented scientific team with demonstrated skills, a unique niche market, and the 

technology to drive forward within that niche. 

Through the incubator, Martek accessed specialized facilities and equipment that 

Martek otherwise would not have been able to afford that served as a pilot development lab for its early products. Those facilities became a scale-up lab for much of 

Martek’s early work, where company researchers could determine whether a num-
32 

ber of individual cells they had grown in the lab were scalable to a larger market. 

Indeed, they were. 

TAP provided much more than access and support. In fact, a primary reason 

Martek was funded in 1986 was because we had been accepted into TAP, which provided a notable third-party validation of the feasibility of our technology to be commercialized. 

In addition to TAP, Martek leveraged Maryland Industrial Partnerships (MIPS) 

funding during the company’s early stages to figure out how to scale-up its microbial 

processes through Mtech’s Bioprocess Scale-Up Facility (BSF), which helps companies take bench-top or lab-produced products and prepare them for mass production. 

Maryland’s programs have served as best-practice models around the country. 

TAP was the first incubator in Maryland; there are more than 20 now. Many universities have replicated the programs within Maryland’s portfolio; two other State 

research funding programs were based on MIPS. 

This support for entrepreneurs has translated into concrete economic benefits for 

Maryland. In addition to the success of Martek, other TAP graduates such as 

Digene have continued to expand and add jobs in Maryland. The latest data from 

the Maryland Technology Development Corp indicates that Maryland’s incubators 

have supported more than 14,000 jobs and generated more than $104 million in 

State and local taxes. 

Martek was an inaugural inductee to the Maryland Incubator Company ‘‘Hall of 

Fame,’’ and we are often held up as a powerful example of the success that business 

incubators can produce through work with startups. It is very hard for early-stage 

companies to get off the ground. Martek certainly went through many struggles and 

near-death experiences over the years. Every day is a struggle when you are trying 

to get started. To have a support system like an incubator gives you a better chance 

for success. It is my hope that companies like Martek can serve as a positive example of success so that programs like TAP will continue to have support. If the resources that were available to Martek during our early years were available to entrepreneurs on a national level, I believe there would be many more success stories 

like ours. 

NIH 

In 2006, Martek’s flagship product, DHA, was the subject of a research project 

funded by a $10.5 million research grant from NIH. 

Sponsored by the National Institute on Aging (NIA), one of the 27 Institutes and 

Centers of NIH, the study explored whether DHA supplementation slows the progression of cognitive and functional decline in patients with mild to moderate Alzheimer’s disease. This study was funded by a NIA/NIH grant to the Alzheimer’s Disease Cooperative Study (ADCS), a cooperative agreement between the NIA and the 

University of California San Diego that was founded to advance research in the development of drugs that might be useful for treating Alzheimer’s, particularly those 

therapies that might be overlooked by industry. Approximately $10.5 million of the 

ADCS grant was earmarked to fund the DHA study. 

This funding was another important marker of credibility for Martek, and the 

study also provided important insights into the use of DHA to treat memory loss 

that may provide the foundation for future research and products. 

Barriers to Success 

For the past 27 years, I have been involved in the financing or management of 

early-stage companies, as a co-manager of two small early-stage venture capital 

(VC) funds, as a member of the management teams of two companies while they 

were raising VC (including Martek Biosciences), and as an individual angel investor. 

Unfortunately, the economic dynamics of today’s venture funds have resulted in 

larger and larger funds that are less and less able to provide early-stage funding. 

Large funds cannot efficiently put small amounts of money to work and usually 

need to return money to their investors within the 10-year life cycle typical of most 

VC limited partnerships. This process will not work for early-stage technology companies seeking smaller initial rounds of financing and is especially bad for lifescience based companies that often take many years to create an exit event for their 

investors. At Martek Biosciences, we raised four rounds of venture capital between 

our founding in 1986 and 1992. We did not have an exit event until after we went 

public in late 1993. Because of our long product development life cycle, which is typical for life sciences firms, we did not become profitable until 2002—16 years after 

our first venture round. 
33 

In today’s economic environment, it is not likely that a company could go public 

so long before profits are anticipated, so early-stage investing in most life-sciences 

companies is outside the exit timeframes of most VC firms. Right now, many science 

firms are in danger of running out of money more so than at any time in my years 

working in the industry. The lack of early-stage funding not negatively impacts employment and growth in an important industry sector, but also has other long-term 

negative effects—new discoveries will not be made, diseases will not be cured, jobs 

will not be created, and the financial spillover from these companies will not occur. 

In my opinion, in today’s environment, a company like Martek would have a much 

slimmer chance of survival. But if government can develop ways to help promote 

early-stage, long-term venture investing that would help fill the funding gap for 

early-stage research, particularly for science and non-IT companies that are in critical need of this kind of support, then we will see many more success stories like 

Martek in the future. 

In Conclusion 

Martek is a great example of how government-supported programs and funding 

can be a critical differentiator between the success and failure of early-stage companies. I, along with the entire Martek team, am personally aware of the ways in 

which programs that I have discussed in my testimony today can serve as lifeblood 

during critical times of a startup company’s evolution. In 1985, Martek had a fantastic idea, an amazingly talented team, and the energy and drive to take the seed 

of an idea from inception to commercialization, resulting in the thriving business 

that Martek is today. Our made-in-the-USA products benefit millions of consumers 

every year and meet an important demand for healthy, sustainable nutritional ingredients. In addition, our technology has provided the foundation for other important projects including improved vaccine development and microbial biofuels. Our 

business today produces revenue in excess of $470 million per year and supports 

more than 600 employees in Maryland, South Carolina, Colorado, Kentucky, and 

Connecticut, and more than 100 additional employees at DSM’s Belvidere, New Jersey, manufacturing facility. Without the above-mentioned programs that were available to Martek, I am certain that the company and the jobs that support many families today would not exist. 

We are now entering yet another phase of our evolution. Earlier this year, Martek 

announced that it had been acquired by DSM, a leading global life sciences and materials sciences company. The sale price was more than $1 billion. In partnership 

with DSM, we expect to continue our significant growth, significantly increasing 

U.S. jobs and revenues. 

Chairman QUAYLE. Thank you, Mr. Dubin. And I would like to 

thank all the witnesses for their testimony. 

I want to remind Members of the Committee rules limit questioning to five minutes. 

I will now at this point trade times with the gentleman from 

Texas because he has to leave, Mr. Smith for five minutes. 

Mr. SMITH. Thank you, Mr. Chairman. And I do appreciate being 

recognized out of order. I have an obligation in now four minutes, 

so thank you for the time. 

Mr. Lindsey, let me address my first question to you. In your testimony you mentioned the Patent and Trademark Office, the PTO, 

and referenced the need to alleviate their backlog. As I am sure 

you are aware, now if you apply for a patent, you have to wait an 

average of over three years. Recently, we passed and the President 

signed the Patent and—America Invents Act for the Patent and 

Trademark Office. I was wondering if you felt that the bill addressed some of your concerns or if there are other things that we 

needed to do to reduce that backlog? 

Mr. LINDSEY. Yeah, I think on the particular issue of the backlog, 

our favored approach was one that was adopted in the legislation, 

which is using market incentives to clear the backlog but to be able 

to get faster expedited service through paying of higher fees. That 

has been balanced with a lower fee schedule for individual inven-
34 

tors, and I think that is creditable as well. So I—there is a lot in 

that legislation. I think it is a mixed bag as far as overall impact 

on entrepreneurs, but on this particular point of clearing the backlog, it looks like the legislation is moving in the right direction. 

Mr. SMITH. And obviously the PTO keeping the fees as well I am 

sure you support. 

Mr. LINDSEY. Yes. 

Mr. SMITH. Okay. Thank you, Mr. Lindsey. 

Mr. Rothrock, let me go to you and reference your testimony 

where you talk about the unintended consequences of legislation 

and regulations and their adverse effect on the formation of capital 

going to innovative companies. Now, could you be more specific as 

to what, let us say, regulations create the hardships that you had 

mentioned and also what remedies you might propose? 

Mr. ROTHROCK. In particular, Mr. Smith, Sarbanes-Oxley is a 

good example of that whereby the unintended consequences of that 

regulation making more transparent the financial reporting in 

large companies, that burden is all the way down to the smallest 

company trying to go public. So going public for a small private 

company is a very important event for a lot of reasons, but mostly 

it provides the capital which the company can grow to become very 

big. Most of the jobs created by venture-backed companies result 

after the IPO. So putting that burden on them on day one of being 

an IPO company slows down that process. And in fact many—we 

have survey data in the MBCA from many CEOs; they avoid going 

public and in fact it delays the whole process. And many good companies remain good and never become great. 

Mr. SMITH. And the solution, therefore, is to lift some of those 

limitations. 

Mr. ROTHROCK. Lift that. We actually have sort of a ramp—an 

onramp to becoming a larger company, yes. 

Mr. SMITH. Okay. Thank you, Mr. Rothrock. 

And Mr. Mann, in your testimony you talked about the existing 

government acquisition processes and procedures that have not 

kept up with technological innovation. Why do you think we have 

the problem and, again, what do you think the remedy should be? 

Mr. MANN. Well, in my experience, traditionally, the acquisition 

model is one around developing custom solutions for the government and what that results in is a multiyear cycle just to get to 

the point of even letting an initial contract for that development to 

take place. At this point in time, technological innovation within 

the private sector is happening on an 18- to 12-month timescale, 

so by the time that initial contract goes out, you are already beginning the procurement process for an antiquated technology. 

Mr. SMITH. Good answer. Thank you, Mr. Mann, very much. 

Thank you, Mr. Chairman, again for the time. I yield back. 

Chairman QUAYLE. Thank you, Mr. Smith. 

I now recognize Ms. Edwards for five minutes. 

Ms. EDWARDS. Thank you, Mr. Chairman. 

And thank you to all of our witnesses. I want to start with Mr. 

Mann. I enjoyed your testimony and learning about your company 

and really congratulate you on your instincts and your success. 

And while your testimony seems to attribute the advent of your 

game-changing microsatellite technology to nongovernmental con-
35 

sumer requirements, isn’t it fair to say that the prior government 

investments in satellite technology laid the groundwork for the 

technical and economic feasibility of Skybox’s microsatellites? And 

I would note that NASA in particular had been investing heavily 

in satellite research and technology since about 1960, long before 

the—you had—your company had this great idea, and so I wonder 

if you could actually speak to the role that investments—prior investments that NASA made, played in your ability to make a successful commercial venture. 

Mr. MANN. Yes, certainly. So I don’t actually have specific examples of investments that NASA made, but to Mr. Rothrock’s point 

in his testimony, we absolutely relied on the foundation of fundamental research investment that accelerated the technology just to 

the point of people recognizing that this is even feasible. But then, 

when we actually wanted to, you know, hit the gas pedal and accelerate the pace of development, that is when it was time to turn to 

the private sector and focus on commercialization rather than sort 

of pie-in-the-sky feasibility. 

Ms. EDWARDS. I guess I just want to point out that since 1960, 

over the course of the last half-century, NASA has made significant 

investments in imagery satellite technology that, you know, has enabled lots of folks to transfer that into the private sector. And so 

the point is that you just can’t—I mean clearly you need that fundamental research. 

But I think, Mr. Rothrock, if we could turn to you, I wonder if 

you could explain, then, how venture capitalists actually make investment decisions? Because I am guessing that venture capitalists 

wouldn’t have just come up in 1960 and said oh, I think we need 

to invest in imaging technology for satellites. It really did take the 

government kind of doing that initially because venture capitalists 

wouldn’t have been—I am just curious about the steps that you 

would go through before you made a decision to make that kind of 

investment. 

Mr. ROTHROCK. Yes, the process of venture capital—there are 

two sides to it. We identify market opportunities where then we 

have sort of in the back of our minds from research and—reading 

and talking to entrepreneurs, lots of information—about technology. And then we would identify a business opportunity to take 

that technology from the laboratory and apply it to a particular 

market problem. That would be where we are the active creator of 

that company. More likely the case is that the entrepreneurs, 

whether they are a graduate student such as Andy Bechtolsheim 

who was a founder of Sun Microsystems who was a real hot hardware inventor, teamed up with Bill Joy at Berkley and put together 

a computer that was quite remarkable. And then they found Vinod 

Khosla and found some venture capital and off they went to make 

a great story. 

So it sort of is on both sides, but really at the end of the day it 

is about building technology on top of scientific endeavors and innovations. You don’t know where that is going to go and you keep 

building up. I daresay that Mr. Mann’s company, Skybox, he has 

built that on the shoulders of great giants and great thinking that 

was this broad, and his company, like most venture capitalists like 

their companies to be very focused. Lack of focus is failure typi-
36 

cally, so we tend to focus. That is what the private capital does. 

It focuses the attention of the entrepreneur on success. 

Ms. EDWARDS. Thank you. And so if I could just turn to Mr. 

Dubin, and thank you so much for your testimony. And I was just 

blown away visiting Martek and learning about all that you do. I 

wonder if you—you talked about—in your testimony about 

leveraging the Maryland Industrial Partnerships funding during 

the company’s early stage, and as I understand it, MIPs provided 

funding that was matched by private company for university-based 

research that helps companies develop new products. Can you tell 

us more about your experience and whether you believe that that 

is something that actually could be replicated? 

Mr. DUBIN. In our early stages I mean we had no money and 

again we were very—doing pretty early-stage research again that 

venture capitalists didn’t really totally want to fund all by themselves, so we were able to leverage all of these programs, I think, 

in a very effective way. 

And the early MIPs grants, what that was for was to kind of help 

us learn how to grow these microorganisms in a controlled way to 

get the products we wanted to and University of Maryland, all of 

the equipment and a lot of expertise and together working with our 

scientists, you know, we figured out some of the basic early-stage 

ways of moving forward. And we used that technology to kind of 

leapfrog to some of the commercial applications. 

So I think, you know, for the right circumstances where university infrastructure is in place and you can leverage the knowledge 

inside the university with some of the ideas from the company’s 

side, it really—it worked great for us. 

Ms. EDWARDS. Thank you, Mr. Chairman. 

Chairman QUAYLE. Thank you, Ms. Edwards. 

I now recognize myself for five minutes. 

Mr. Lindsey, you talked about various tax incentives to allow 

startups to continue to innovate. There has been a lot of talk up 

here on Capitol Hill about fundamental tax reform which will get 

rid of many of the deductions while also lowering the rates. How 

do you feel about that in the context of it might be eliminating a 

lot of those deductions or incentives but allowing for a lower overall 

corporate tax rate? 

Mr. LINDSEY. I think in the long term, the proper goal is fundamental tax reform with a wide base and low rates and as few exemptions as possible. Given the reality of our current byzantine tax 

structure and the formidable obstacles to getting to that truly clean 

kind of tax code, if we are going to have a dirty, messy tax code, 

then we should have some little, dirty, messy exclusions that benefit new businesses. But the long-term goal ought to be fundamental tax reform. 

Chairman QUAYLE. Thank you. 

And Mr. Rothrock, I want to talk—I want to ask about—in Arizona we have a thriving high-tech industry but we don’t have a lot 

of VC funding that is going into Arizona, and this happens all 

across the country is that VCs seem to be mainly in certain geographic areas. How do VC firms plan or how do they go about getting outside of their geographic areas where they are located in 

finding the new companies in Arizona or elsewhere? 
37 

Mr. ROTHROCK. I think that largely sort of relies on the philosophy of the firm. My firm, Venrock, starting in New York City, that 

was not exactly the hotbed of a lot of technology in the early days 

or even presently, but we have always—my firm always has had 

the DNA to go out and look for deals and people wherever they are. 

And we have invested in many States from Florida to South Carolina, Kansas, Texas, Arizona, and other places. So we actually seek 

out those entrepreneurs in those regions. There are a lot of local 

venture capital—I don’t want to say clubs but associations that 

host and invite people in from afar, but I think it really goes to the 

DNA of the firm. Some firms just simply don’t want to climb on airplanes. 

Chairman QUAYLE. In your testimony you were talking about 

VC-backed firms being involved in SBIR programs, and one of the 

things that we had testimony on that when we were going through 

the reauthorization of SBIR and one of the witnesses stated that, 

you know, VC firms act as a very good gatekeeper because they can 

actually see whether the technology will be able to be viable rather 

than a government agency trying to pick which ones. Do you think 

that is a correct assessment? 

Mr. ROTHROCK. It is largely correct. I think venture capital—the 

process of venture capital is about the most efficient way to find 

the best ideas with scarce capital and scarce people. I think the 

SBIR program is very important because it is a leverage effect. It 

always takes longer and costs more money to build a company, and 

just like Mr. Dubin was talking here, that was a tremendous example of how an SBIR led to venture capital so the two worked together to build his company. So I think that is really essential. It 

is the program, not one or the other. It is mutual. 

Chairman QUAYLE. Right. Okay, thank you. 

And Mr. Mann, you talked about ITAR and kind of the unintended consequences that have come out of that, especially for your 

company. Mr. Lindsey had talked about a 10-year sunset for regulations. There are also various pieces of legislation that—one that 

I am working on also is that after 10 years you actually have to 

go back, reevaluate, do a cost-benefit analysis to make sure that it 

is actually doing what it is supposed to be doing and if it can be 

done in a way that is, you know, less burdensome on the private 

sector. How would something—like the sunset provisions that Mr. 

Lindsey was talking or other types of legislation so that we reevaluate various regulations after a 10-year cycle—how would that 

help you? Would it help you in terms of getting rid of some of that 

overly burdensome and also unintended consequences from legislation passed that nobody thought was going to happen? 

Mr. MANN. I think the answer there is absolutely. You know, 

given the age of the ITAR, when it was initially conceived, international competitors were not in the same place when it comes to 

space technology. For example, obviously the ITAR covers much 

larger than space-based technologies. But I absolutely think with 

some kind of sunsetter or revisit on those regulations, we would 

have seen, at this point, international competition catching up and 

now eclipsing our own progress and hopefully made necessary 

change to the regulation to try to alleviate that problem. 

Chairman QUAYLE. Okay. Thank you very much. 
38 

I now recognize Mr. Luja ́n for five minutes. 

Mr. LUJA ́ N. Mr. Mann, federally funded scientists could be a tremendous resource for small and startup businesses. I come from a 

State that has two of the three NNSA national laboratories with 

Los Alamos National Labs and Sandia National Labs, in addition 

to the Air Force Research Laboratory, Air Force Nuclear Weapons 

Center and Satellite Office, in addition to NASA with White Sands 

down in the southern part of the State; whether it can help with 

what material to use or how best to analyze a complex business 

problem, small businesses throughout the State have made good 

use of the program in New Mexico as well as some outside of New 

Mexico. Is there something that can be done on a federal level to 

facilitate federally funded scientists providing technical assistance 

to small businesses, taking into consideration this notion of the 

anticompetitive clause or things of that nature that exist with some 

of our national labs? 

Mr. MANN. I certainly think there could be benefit to that kind 

of collaboration. I am slightly speechless because I haven’t really 

given that significant thought in the past. I do know, for example, 

one thing that I have been in conversations about is making the 

facilities available and our national labs available to small businesses because we have—you know, the taxpayers have put substantial investment in building out these facilities that often go underutilized and small businesses are particularly the ones that 

don’t have access to sufficient capital to build up those facilities 

themselves. So that I can certainly see as being something. 

As far as more direct research collaboration, again, you know, in 

my testimony I address the idea of government not acting as a venture capitalist. That was, I realize now, a nuanced point in that 

venture capitalists take technologies that have been substantially 

validated and target them at markets. The government should be 

investing in technologies, bringing them up to that level of being 

ready for venture capitalists to move forward with, not picking the 

technologies that will actually be financial success. 

Mr. LUJA ́ N. So just for clarification there, so almost a true partnership with what the government is doing with VC helping to get 

through that valley of death? 

Mr. MANN. Yeah, exactly. 

Mr. LUJA ́ N. Mr. Rothrock, same question. Any thoughts or perspectives associated with how VC looks at the benefits associated 

with getting more of our physicists, scientists, engineers more involved with business and with projects, research, or even helping 

as that technology comes out to a commercialized perspective? 

Mr. ROTHROCK. One specific idea I have is I know a number of 

universities allow their professors—in fact some require it—to 

spend a day a week or some portion of their working time affiliated 

with commercial enterprises. It does two things: one, it makes 

them aware of what commercial enterprises are looking for and 

what is marketable and so forth; but it also brings a little bit of 

that market to the laboratory so the professor, when he is writing 

a grant or proposal to receive funding, he can sort of target it that 

way. That relationship is a very good one. 

The other is about using the assets. We actually have a company 

that has now found its way to North Carolina as a result of finding 
39 

facilities that were available. Actually, they found equipment that 

was for sale and it was too hard to move it across the country, so 

the company relocated itself to the equipment rather than bringing 

the equipment to the company. 

So those kinds of things and having that available, NASA was 

very good for awhile publishing NASA tech briefs which allowed 

entrepreneurs to thumb through what was current, what papers 

were published. That sort of—with the Internet and what—all the 

communications facilities, that sort of transfer of information is 

good. 

You know, a research professor is a really good research professor, not necessarily a great entrepreneur. But facilitating those 

people getting in the same room and talking about things is essential. 

Mr. LUJA ́ N. I appreciate that very much. And one of the questions that I will be submitting to our panel—and I appreciate all 

of you being here today—is last Friday, the President issued a 

memorandum to the heads of executive agencies directing them to 

improve the results of its technology transfer and commercialization activities, and I am going to be very curious from your vantage 

point what suggestions would you give to those agency heads and 

maybe to this committee so that way we can work on that collectively. 

But Mr. Rothrock, I was intrigued by—in your testimony, first, 

America’s dependence on foreign fossil fuels cannot continue at its 

current rate. Second, the nation that grows its economy with clean 

energy will lead the global economy of the 21st century and talking 

about ARPA–E specifically and the importance of the competitiveness of the country. Can you just talk about that a little bit more? 

I really appreciate that being in there. 

Mr. ROTHROCK. Sure, happy to, sir. The—you know, the 20th 

century was built on the back of fossil fuel, and if you subscribe 

to the theory that we are going to run out of it, then we have to 

come up with something else. And the industry of energy is the 

largest industry on the planet, whether it is electricity or petroleum. And so transforming to that new industry, whatever form it 

is, whether it is solar, nuclear, wind, or just alternatives in general, is going to be essential. Otherwise, your existing society will 

not be able to function; it has to have energy. So whoever gets 

there first will probably—may dictate some standards, will certainly be further down the cost curves because commodities, it is 

all about cost in a commodity world of energy whether it is petroleum or electricity. So whoever gets there first, I think, will have 

a distinct advantage. 

You know, in the example here is a semiconductor relationship. 

Intel found itself quite competitive with Japan back in the ’70s 

with the DRAM business. Well, they said we will let Japan have 

that and we will go after the CPUs, which is the brains of all these 

microprocessors. And look at the results. DRAMs are clearly a commodity and they are bought everywhere for practically no margin 

and no profit, whereas Intel is a huge successful company. So the 

ability to pivot, as they say in today’s language, to these new industries, getting the energy industry to recognize the alternatives, 

investing taxpayer dollars into these programs whether they are in 
40 

the universities or in the national labs and then bringing that out 

to the entrepreneurs, I think, is really, really essential. And who 

is there first probably wins. 

Mr. LUJA ́ N. Thank you, Mr. Chairman. I appreciate the time and 

I hope that collectively we might be able to be supportive of programs like that going forward, see what we can do to make sure 

we ensure the competitiveness of the country. 

Mr. ROTHROCK. Thank you. 

Chairman QUAYLE. Thank you, Mr. Luja ́n. 

I now recognize Mrs. Biggert for five minutes. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

Thank you all for being here. This is a very important issue and 

I think you are very helpful to us. 

My first question would be for Mr. Lindsey. In your testimony, 

you argue in favor of allowing university faculty members to choose 

their own technology licensing agents. Can you explain in more detail how the current system inhibits innovation, and how might a 

change in licensing rules affect universities that fund a portion of 

the faculty research? 

Mr. LINDSEY. Sure. There is a huge asymmetry at present between the freedom allowed to academics in their research capacity 

and the freedom allowed to them in their commercialization capacity. So no professor has to go and get permission or go through a 

queue and get clearance before he or she collaborates with academics in other institutions on a research project or on writing a 

paper. They are free agents in their academic research lives. They 

are not free agents, however, in their commercialization lives because to take any kind of—to get any kind of licensing of new ideas 

that they develop in their research, they have to go through their 

own university technology licensing office. 

Those licensing offices act effectively as venture capitalists, picking winners of all of the promising research ideas that are coming 

out of their university, focusing on particular ones, and devoting 

time and energy to helping those ideas get licensed. They aren’t 

necessarily the best qualified people to be doing that job. There is 

always a backlog problem. They don’t necessarily have the acumen 

to pick—to prioritize. They may be looking for home runs and leaving good singles and doubles moldering in a queue, and so as a result, we don’t have competition amongst agents for helping academics commercialize their ideas. 

What we propose is moving towards a free agency model where 

an academic who has developed some promising new research finding and sees commercial possibilities with it could go to a private 

agent, could go to other universities’ technology licensing offices, 

and so forth. The best way for the Federal Government to encourage a move towards a free agency model would be to condition its 

research grants on allowing researchers freedom to choose their 

own agents. 

Mrs. BIGGERT. Does this apply to the labs as well? 

Mr. LINDSEY. It could, yes. 

Mrs. BIGGERT. So are these current limitations, then, they are 

really due to the university—— 

Mr. LINDSEY. They are university-based, yes, they are. 

Mrs. BIGGERT [continuing]. Not any federal policy? 
41 

Mr. LINDSEY. Yes. 

Mrs. BIGGERT. Thank you. 

And Mr. Rothrock, number one, you—as a venture capitalist and 

you are out and you decide to provide an innovative idea—money, 

do you ever—some of the things I have heard from some companies 

is that the venture capitalists come in and they actually take over 

the company and start running it and kind of the innovators kind 

of, you know, lose out. I mean, they feel like it is not their company 

anymore and it is taken over. Does that happen very often or is 

it—— 

Mr. ROTHROCK. I don’t believe it happens very often. I have 

heard of some of those stories, too, but I think it is very rare. 

Mrs. BIGGERT. Okay. And then you talk about ARPA–E and what 

are the—are there—have you had anything to do with ARPA–E as 

far as this venture capitalist or the companies that have gotten 

money from ARPA–E? 

Mr. ROTHROCK. Yes, ma’am. In my firm, one company did receive 

ARPA–E funding, but it was after we and another venture firm 

had already invested $1 million in the project and had proven that 

what we were working on had some merit. And then they applied 

for the ARPA–E grant and received it. 

Mrs. BIGGERT. Have you done anything with the Office of Science 

in the Department of Energy? 

Mr. ROTHROCK. Nothing specifically. I do know Dr. Koonin, but 

that is just through the business. 

Mrs. BIGGERT. Um-hum. So you think that there is more innovation for ARPA–E? 

Mr. ROTHROCK. Yes, ma’am, I do think there is a lot more innovation opportunity for ARPA–E, electric vehicles, all the places that 

are presently not receiving what I think is sufficient amount of 

R&D capital. I think ARPA–E should be focusing much like 

DARPA did. 

Mrs. BIGGERT. Well, something like the SBIR, you know, phases 

in monies but ARPA–E is just one time that they would commit to 

a project? 

Mr. ROTHROCK. That is my understanding but it is over multiple 

years, for example. So it would be an amount of money over a period of time. 

Mrs. BIGGERT. All right. Thank you. I yield back. 

Chairman QUAYLE. Thank you, Mrs. Biggert. 

I now recognize Mr. Lipinski for five minutes. 

Mr. LIPINSKI. Thank you, Chairman Quayle. 

I would like to start by congratulating Ranking Member Edwards 

here for—congratulating her for stepping up to this position. I have 

enjoyed working with you on this Committee and our other committee in the past, and I know that—looking forward to your leadership here on the Subcommittee. 

I firmly believe that along with education, the most important 

issue that our Committee can consider is how to turn our advantages in research and development into jobs and new businesses, 

and it is something that I have really focused on since I started 

serving in Congress and serving on this Committee. 

I want to talk about getting to proof-of-concept programs and 

talking about I-Corps because when the SBIR/STTR reauthoriza-
42 

tion bill was passed by this Committee in the spring, I offered an 

amendment that was adopted with bipartisan support to create a 

proof-of-concept center pilot program within the STTR program at 

NIH. The proof-of-concept centers that I want to create would 

share many of the goals and strategies seen in the I-Corps program 

that the NSF has since announced. 

Both my initiative and their program were modeled after success 

at the Coulter Foundation, the European Research Council, and 

MIT’s Deshpande Center. At its core, this is a simple idea—give researchers with an invention the tools they need to conceptualize 

and plan a new business. But it is a critical problem since academic researchers often don’t know anything about developing and 

improving their small business idea—proving that it can work. I 

know that the Kauffman Foundation, along with Stanford Technology Ventures Program and MIT’s Deshpande Center, has 

partnered with the NSF in creating I-Corps and I heard, as I was 

home on Monday mowing my lawn listening to NPR, I heard the 

story about I-Corps at Stanford. 

So I would like to ask Mr. Lindsey about his involvement in and 

perspectives on his program. Can you explain how—first of all, how 

I-Corps is working and what role—what the role of each organization has and any thoughts on how this can be expanded or replicated, especially to reach schools and researchers who haven’t historically had success in commercializing their innovations? Mr. 

Lindsey. 

Mr. LINDSEY. Thank you for the question. 

The Kauffman Foundation is a big and diverse place doing all 

kinds of wonderful things, including working on the I-Corps issue. 

That is not in my portfolio, so what I will do is talk to my colleagues who are involved to give you the most knowledgeable answer and get back to you. 

Mr. LIPINSKI. Okay. And I know Mr. Mann had spoken about— 

you were at Stanford, correct? Were there courses that you took at 

Stanford that were helpful in terms of entrepreneurship? 

Mr. MANN. Oh, absolutely. In fact the original business plan for 

Skybox was created within an STVP course. So Stanford absolutely 

has an educational pipeline designed to help innovators understand 

what they need to do and then, as I have previously mentioned, 

also show them the door with the perspective of if you want to commercialize it, take it outside the university. 

Mr. LIPINSKI. You think this is something that can be done elsewhere? Is there something unique to—at Stanford with this location and its connections or how do—do you think this can be replicated? 

Mr. MANN. I absolutely think it can be replicated. MIT has done 

a phenomenal job of building up a similar type of base. Stanford 

is currently in a bid to build the Stanford New York City campus, 

which would similarly create a center for innovation, but I don’t 

think it is just limited to those schools. I think really any university that has really active research and development capabilities 

should be investigating ways to create educational opportunities 

that facilitate that kind of external transition. 

Mr. LIPINSKI. Well, one other question before I run out of time 

or—maybe lead into a question I will put in for the record. I am 
43 

currently developing legislation to improve the Bayh-Dole Act. One 

of my goals is to make sure whenever possible that taxpayer-funded R&D turns into American-made products and American jobs, 

and so since my time is expiring, I will put that in for a QFR to 

ask about what can be done and what Congress can do to better 

incentivize domestic production of inventions that began with federal R&D investments because, as I said, I think that is one of the 

critical things we need to do here. As people are asking where are 

the jobs going to come from, what is the future of American jobs? 

I think the R&D that we are doing here, a lot of it is funded by 

the Federal Government can better be turned into American jobs. 

With that, I will yield back. 

Chairman QUAYLE. Thank you, Mr. Lipinski. 

I now recognize the third member in a row from Illinois, Mr. 

Hultgren, for five minutes. 

Mr. HULTGREN. Thank you very much. Thank you all for being 

here. I really appreciate it. I have a couple quick questions for you. 

First of all, as you I think are aware, for the last 30 months, 28 

of those months we have had unemployment here in America above 

nine percent. I mean these are brutal times. I am absolutely convinced that a big part of getting this turned around again is getting 

innovation and entrepreneurship growing again. 

One question I want to start with for each of you, if you could 

just give a brief answer on this, is really a question for us as policymakers, what our focus should be. And I know both of these 

things are important, but I am asking you which is more important. Is it more important for us to target policies designed to provide an immediate boost to our economy, or is it more important 

to have economic policies designed to create conditions for longterm economic growth? And if I can just get a thought. Again, I 

know you would say both, but which is more important? 

Mr. LINDSEY. I would say that Congress doesn’t have a lot of leverage or a lot of money right now to do short-term stimulus, so 

I think that is more in the hands of the Federal Reserve at this 

point than it is in the hands of Congress. So I think Congress’ focus 

ought to be on the long-term growth issue. 

Mr. MANN. I, too, agree that it should be focused on long term, 

especially with regard to the fact that venture capitalists are looking at longer time horizons for return on investment. They are 

looking for scenarios in which that kind of investment will generate 

return. 

Mr. ROTHROCK. Yes, I would echo that. In fact, as a venture capitalist, I always like to say that entrepreneurs don’t read the newspaper, they don’t watch television. They are always optimistic 

about thinking very long-term and my style has to match that. So 

I am very much for that. 

I would emphasize in your thinking about that to make it stable 

and constant over time and predictable. 

Mr. HULTGREN. Thank you. 

Mr. DUBIN. I agree for the entrepreneurial economy, longer term 

is better. For our industry, long term is all there is and I think— 

I don’t think there is any magic bullet. It is a matter of creating 

an environment and a culture and a support system that attacks 
44 

the issue from many different angles and that—you can’t do that 

overnight. 

Mr. HULTGREN. I totally agree with you. Thank you. It got hot 

all of a sudden. 

But any suggestions you have on this of how we can bring more 

certainty to this over the long term? I absolutely agree. You know, 

that is what we have got to be focused on, especially in these times 

of very low resources. 

I do want to shift a little bit. And Mr. Mann, I appreciate your 

testimony. And really the experiences you had at Stanford that 

really led to the creation of your business, I wondered if each of you 

could just give me kind of a thought you might have of your current—the feel for current undergraduate and graduate students as 

how they are continuing to view opportunities for entrepreneurship. Do you see any recent trends in the way potential entrepreneurs view opportunities to create their own companies? And 

are there cost-effective ways that we can promote the benefits of 

entrepreneurship to undergraduate and graduate students? 

Mr. MANN. So I haven’t actually seen a significant change in the 

way—that may just be because Silicon Valley tends to be a bubble. 

Stanford is a bubble within a bubble and I have had my head in 

the sand for the last three years trying to build a company. But 

ultimately, there is always a subset of undergrad and graduate researchers who are more interested in taking what they invent and 

going out and commercializing it than they are in sort of the pure 

pursuit of academic research. And I don’t think that is something 

that has been changing in any large way. 

Mr. ROTHROCK. I would add that the sort of great man theory or 

great woman theory that—to the extent that important people that 

have an impact on an entrepreneurial ecosystem can be highlighted 

and emphasized I think makes people rise to the occasion. I think 

also a part—I participate as a mentor in a second-year program at 

the GSB at Stanford, team of people with ideas and I help them 

form it into a business plan. I think either formalizing or recognizing those kinds of programs may be—you don’t need financial 

support but just acknowledging it and pushing it. 

Mr. HULTGREN. Thank you. Let me jump in here. My time is 

winding down but one more question for Mr. Lindsey. I wonder if 

you could elaborate. In your statement you had said, ‘‘ . . . as countries get richer, they become more dependent on homegrown innovation to keep the growth machine humming.’’ I wonder to you 

what that means for the United States in particular? 

Mr. LINDSEY. First of all, let me just go back to your question 

on the university side. One of the great strengths of our system is 

bringing brilliant kids from all over the world and educating them 

and then shoving them back to their own countries. So I think a 

vital way to cash in on the strength of our system is to staple green 

cards to diplomas for people with STEM degrees or particularly to 

give visas to people who actually have plans to start their own 

businesses. Those would be enormous gains. 

Just to focus on one issue of how the sources of growth are 

changing in the United States and pushing more and more of the 

burden for keeping our economy growing onto innovation are demographic changes that haven’t gotten a lot of notice but they are 
45 

hugely important. Over the whole course of the 20th century, we 

got a big tailwind from the growing participation of women in the 

labor force. So one of the easiest ways to get higher GDP per capita 

is just to get a higher and higher percentage of people making 

GDP, getting them out of the home and into the workplace. 

But that has stopped, so women’s labor force participation 

peaked in the late ’90s, started trailing downward before the recession. Men’s labor force participation has been going down gently for 

decades because of later entry into the workforce and because of 

early retirement, and so, as a result, our employment-to-population 

ratio is—even before the recession was lower—was going downward 

and as a result—according to McKinsey Global Institute research— 

labor force growth in the ’70s contributed 2.0 percentage points to 

GDP growth—annual GDP growth. It is projected to contribute 

only 0.5 percent in the decade between 2010 and 2020. So that is 

a point and a half of GDP growth gone and we have got to make 

it up somewhere. According to McKinsey, we need an increase in 

productivity growth of 25 percent to just maintain historical growth 

rates. 

We have had great difficulty over the years in matching old productivity growth rates, so that just, I think, illustrates that we are 

now facing a big headwind on the demographic front and the only 

way we can make it up is through innovation. 

Mr. HULTGREN. My time has expired. I yield back. Thank you 

very much. 

Chairman QUAYLE. Thank you, Mr. Hultgren. 

I now recognize Mr. Cravaack for five minutes. 

Mr. CRAVAACK. Not from Illinois so—hi. Thanks for being here 

today. I think this is really the crux of what we are seeing in colleges today. You know, some of the college students we have seen 

overseas, you know, they are crammed full of knowledge and they 

are encyclopedias basically, but what is different here in the 

United States is we are innovators, we are creators, we are—want 

to see what is on the next edge of the envelope. And that is what 

makes this country so great and that is what we need to keep on 

focusing on in the future. 

Mr. Mann, I have a question for you. You know, stereotypical— 

you know, expect the next great thing to be from some college student that is skipping class in a garage somewhere, you know, developing, you know, something. And would you consider that the 

same? Would you consider that a stereotype that is what we are 

seeing today? Are they—you know, are they in the college system? 

Are they out of the college system? Are they just using their own 

innovation to get this done? What do you think? 

Mr. MANN. I would definitely say that still exists today. I mean 

that is exactly my story. You know, we were at Stanford doing the 

research and ultimately left the university. You know, I dropped 

out of school in the long history of entrepreneurs chasing their vision because I believed we had the opportunity to fundamentally 

change the world. 

Mr. CRAVAACK. Well, kudos to you. You know, one of the things 

I—in your company I was reading about your company as well. You 

had a little bit of trouble trying to get some venture capitalists, 

drop out from Stanford, you know, basically come and believe in us, 
46 

right? And here you are with this great idea, this fantastic idea 

that you know is going to work but yet you are finding trouble to 

get venture capital. How can we help young people like yourself to 

be able to get the capital that they need to follow that dream and 

ambition? 

Mr. MANN. Well, again, the biggest thing came down—came back 

to the education piece. You know, ultimately for Skybox in the 

summer of 2009 we were trying to convince investors used to investing in Internet companies to invest in a satellite company. 

That was not a particularly easy task, so through the activities of 

the STVP programs we came to understand how to position an opportunity in a way that it was ultimately fundable, you know, and 

ultimately it meant finding the node and enabling the node to see 

that we were doing to the satellite industry the exact same thing 

that he and his computers at Sun did to the mainframe. 

Mr. CRAVAACK. Mr. Rothrock, what do you think? You know, how 

do you see guys like Mr. Mann and how do you seek him out and 

say, wow, this guy has got a great idea. You know, how do we do 

this? 

Mr. ROTHROCK. We see—the funnel of entrepreneurs that walk 

in our front door or give us a call or send us an email ranges from 

all walks of life, all corners of the country, educated, college degrees, dropouts, you name it. It comes in all forms and we don’t 

necessarily hold that against them or for them as an advantage in 

some cases. So I think it is a little bit of a myth about—it is really 

about the person, the thinking. Einstein said imagination was more 

important than knowledge and we seek that. In the presentation, 

is it really creative? Have they thought through contingencies? 

How do they deal with the competitive question? We call it leg 

drive at my firm. Does this person really, you know, get up in the 

morning and before they have their shower they have already got 

three ideas in how they are going to win? You look for that spark, 

and that comes whether you have got a college education or not. 

That is a human characteristic. 

Mr. CRAVAACK. Yeah, I understand that one. 

Mr. Lindsey, what do you think about all this from your perspective? 

Mr. LINDSEY. I will just add that, of course, the college kid with 

a great idea is a part of the entrepreneurial reality but it isn’t the 

only part. According to Kauffman Foundation research, the average 

entrepreneur or the average new business founder is 40 years old. 

He has been—he or she has been working her business and has a 

new idea and figures out that he can’t get it done in his company 

and sets out on his own. So it takes all kinds. 

Mr. CRAVAACK. Yeah, it does. I had the fortune to go to the 

Naval Academy and fortunately those guys are kind of locked in, 

but you know, some of the great ideas that I saw from some of the 

guys working through there made their way up through the ranks 

and so it is great to see. So I had the pleasure of rooming with an 

electrical engineer so—but anyway, well, thank you very much. I 

appreciate it. 

And with that I will yield back, Mr. Chairman. 

Chairman QUAYLE. Thank you, Mr. Cravaack. 
47 

And I would like to thank the witnesses for their valuable testimony and the Members for their questions. The Members of the 

Subcommittee may have additional questions for the witnesses, 

and we will ask you to respond to those in writing. The record will 

remain open for two weeks for additional comments and statements 

from Members. 

The witnesses are excused. Thank you all for coming. This hearing is now adjourned. 

[Whereupon, at 11:25 a.m., the Subcommittee was adjourned.] 

(49) 

Appendix 

ANSWERS TO POST-HEARING QUESTIONS
50 

ANSWERS TO POST-HEARING QUESTIONS

Responses by Mr. Brink Lindsey, 

Senior Scholar in Research and Policy, 

Ewing Marion Kauffman Foundation 

for Space-Based Positioning, Navigation, and Timing 

Questions Submitted by Subcommittee Chairman Ben Quayle 

Q1. It often seems that the Federal Government promotes ever-higher regulatory 

standards among States. In the Startup Act, the Kauffman Foundation calls for 

an assessment of the legal environment toward businesses in different States 

and major cities. How would you recommend developing the criteria for this assessment? 

A1. We recommend using criteria similar to those employed in the World Bank’s 

‘‘Doing Business’’ reports. For more information about the methodology used in 

those reports, see here: http://www.doingbusiness.org/methodology. 

Q2. Your testimony detailed how changes in licensing rules might improve university 

technology transfer. Has Kauffman explored any other possible changes to the 

Bayh-Dole or Stevenson-Wydler Acts that might support more university or federal lab-generated innovation? 

A2. We have explored options for changing the Bayh-Dole Act but have come to 

the conclusion that it is not necessary to amend the Act to encourage or mandate 

‘‘free agency’’ for researchers or, alternatively, a 90-day right of first refusal by the 

technology transfer office at the researcher’s own university. The appropriate incentives—namely, conditioning federal grants on the university’s allowing greater freedom for its researchers—could be embodied in appropriations for science research. 

Furthermore, appropriations language could authorize or direct funding agencies to 

allocate up to 1% of science grant awards to commercialization education for the 

principal investigators, where relevant. In addition, in the age of Web 2.0, universities are not taking advantage of the technology available today for online licensing. Kauffman Foundation funded the development of infrastructure to allow online 

licensing, and currently only seven universities in the U.S. are using it in a very 

limited fashion. Incentives for universities to be evaluated based upon science that 

quickly moves to the market should be put in place and utilized as a criterion for 

federal funding. 

Questions Submitted by Ranking Subcommittee Member Donna Edwards 

Q1. Some have proposed creating public-private research consortia—consisting of 

small and large businesses, universities, and government entities—to work together on precompetitive research challenges that are driven by industry need. 

The successful Semiconductor Research Corporation initiative is an example of 

such a consortium. In your opinion, do you believe there is value to these sorts 

of industry-defined research collaborations, and should the Federal Government 

be doing more to encourage them? 

A1. Whether Sematech was really that successful is open to dispute. In any event, 

given the shortage of federal dollars, funding additional consortia does not seem like 

an especially promising idea. It should be noted that the Kauffman Foundation was 

the seed funder of a large business/university collaborative model called the University Industry Demonstration Partnership. While this initiative has aided in collaborations, there have not been any outcomes focused on precompetitive research challenges. 

Q2. In his testimony, Mr. Mann mentioned the courses available to him as a student 

at Stanford to help educate and foster entrepreneurship. While Stanford is undoubtedly a leader in this area, there are many universities throughout the country that do not currently offer this type of education or these opportunities to 

their students. Do you believe this sort of entrepreneurial education should be 

made available to students throughout the country? If so, in you opinion, what 

are the key components of a successful entrepreneurial education program? What 

barriers exist to instituting these sorts of programs throughout the country? 

A2. Our experience has increasingly led us to the conclusion that entrepreneurship 

is best taught in real time, as students are actually undertaking a new business. 

Here, the Launchpad program, begun at the University of Miami and now being 

replicated at Wayne State and potentially other universities, shows great promise. 
51 

The key to this program is that it is run out of the university’s career counseling 

office, which provides mentorship and networks for finding money, employees, and 

customers. No policy barriers exist here, and so any and all universities, and community colleges as well, are capable of starting Launchpad-type programs. There is 

no need for federal funding here, as alumni and local businesses are likely supporters. In addition, Kauffman FastTrac has provided education and peer networks 

for over 300,000 individuals across the U.S. with no federal funding. Furthermore, 

universities like Stanford are now offering their more popular courses on starting 

your own venture online for free. There are many avenues for education, none of 

which should require federal funding. 

Question Submitted by Representative Randy Neugebauer 

Q1. Have you observed any small startup businesses having difficulties obtaining 

loans or accessing capital? Have you observed any changes in banks’ underwriting standards or compliance costs affecting startups’ abilities to obtain 

loans? 

A1. At present, there is only anecdotal evidence that banks have tightened underwriting standards for lending to all small business, including startups as well as existing enterprises. This is potentially important because Kauffman research shows 

that contrary to conventional wisdom, bank financing is quite important to startups. 

For the relevant Kauffman study, see here: http://www.kauffman.org/ 

uploadedFiles/Capital¥Structure¥Decisions¥New¥Firms.pdf. 

Questions Submitted by Representative Daniel Lipinski 

Q1. Describe your experiences with federal R&D funding mechanisms, whether your 

companies do their manufacturing here in the U.S., and if there is anything 

Congress can do to better incentivize domestic production of inventions that 

began with federal R&D investments. 

A1. The Kauffman Foundation is not a manufacturing company, so the first part 

of this question is not applicable. One possible way for Congress to incentivize more 

domestic production would be to redirect some existing education funding toward 

matching grants to states to support community college training programs for manufacturing jobs, since a major reason U.S. companies move production offshore is a 

shortage of qualified personnel here. 

Q2. Please explain how the NSF Innovation Corps (I-Corps) program is working and 

the role of each of the participating organizations—NSF, Kauffman Foundation, 

the Stanford Technology Ventures Program, and MIT’s Desphande Center. How 

will you decide if I-Corps is successful? Do you have any thoughts as to how it 

can be expanded or replicated, especially to better reach schools and researchers 

who haven’t historically had success commercializing their innovations? 

A2. The Kauffman Foundation published a report by Christine Gulbrandsen that 

was a five-year evaluation of both the Desphande and Von Liebig Centers—both 

university-based proof-of-concept centers intended to accelerate science to market. 

Kauffman and Desphande Foundation leadership have worked together over the last 

three years to aid universities in understanding and replicating these programs. To 

date the only actual replications are QB3 at UCSF and the Institute for Advancing 

Medical Innovation at the University of Kansas. Desphande and Kauffman leadership have also worked with the NSF leadership to determine the potential to scale 

this model in a virtual manner, an effort that resulted in the I-Corps. While it is 

too early to report the results of the I-Corps program, we should look to scale the 

program not only within NSF but also within NIH as we are able to use the University of Kansas and UCSF models as examples. The only true metric for success for 

these programs should be the increase in volume of licensed technology from the 

university to the marketplace. Again, it will be imperative that the university faculty engaged and funded by the program be supported through the process to assure 

that the entire university is incentivized to move science to market rapidly in support of the process. It is not necessary for any additional federal dollars to be allocated in support of this program. 

Questions Submitted by Representative Ray Luja ́n 

Q1. Basic research is key to future innovation. But the direct products of basic research are publicly available, as it should be for the integrity of the scientific 
52 

process. This means that entrepreneurs and innovators all over the world have 

access to this basic resource of new knowledge from which new innovative businesses can develop. So how can we foster the transfer of technology from our labs 

and universities to our entrepreneurs and innovators? 

A1. Our top recommendation here is to encourage universities to allow their researchers ‘‘free agency’’ in commercializing their research—i.e., allow them to use 

any agent they want instead of having to rely, as at present, on their own university’s technology transfer office. Short of outright free agency, universities could be 

encouraged to reserve a 90-day right of first refusal for their TTOs with free agency 

after that period. 

Q2. Recently, the President issued a memorandum to the heads of executive agencies 

directing them to improve the results from its technology transfer and commercialization activities. From your vantage point, what suggestions would you give 

to agency heads to accomplish this? 

A2. Agencies should condition grant funding on universities’ implementing either 

free agency or a 90-day right of first refusal policy for their TTOs. 

Q3. The technology transfer process is full of difficulties. One of the most difficult 

is the gap, or valley of death as it is called, where the federal agencies funding 

the basic research don’t want to fund the applied research and prototype development because they believe it to not be within their mission, and the private 

sector won’t fund the work because it is too risky with so many ways for the 

early stage good idea to turn out to not be a viable business. So how do we 

bridge this valley of death? 

A3. Direct government funding as a way to bridge the valley of death is inadvisable, as all the recent problems with Solyndra make clear. The most constructive 

path for federal policy in this area is to exempt long-term (i.e., at least five years) 

investments in startups from capital gains taxation. 

Q4. Cooperative Research and Development Agreements (CRADAs) are a common 

contracting mechanism for federal labs to partner with private entities to mature 

technologies to the point where private capital is willing to invest in the technology. If the government does not pay its portion of the CRADA work and requires the private entity to pay the entire cost, will this deter small businesses 

from entering into CRADAs with labs and thereby reduce the amount of technologies that are transferred to the private sector? 

A4. We lack sufficient experience with CRADAs to respond to this question. 

Q5. Federally funded scientists could be a tremendous resource for small and startup businesses. In my State of New Mexico, we have two national laboratories 

and the State has a program to pay the time for personnel at these labs to provide technical assistance to small businesses. Whether it be help with what material to use or how best to analyze a complex business problem, small businesses throughout the State have made good use of this program. Is there something that could be done on a federal level to facilitate federally funded scientists 

providing tehcnical assistance to small businesses? 

A5. It is important to recognize that the majority of federal laboratories have contracted their management and these federal laboratory management contracts are 

not evaluated based upon advancing science in the lab to the marketplace or their 

collaborations with small or new businesses. If the government has expectations of 

commercial outcomes from the federal laboratories, it should review the management contracts and align incentives appropriately. Federal funding could come with 

a stipulation, at least in some cases, that technical assistance to small business is 

part of the scientist’s job description. 

Q6. As Chair of the Congressional Hispanic Caucus’ Economy and Workforce Task 

Force, I recently held a roundtable with representatives from the technology industry to focus on fostering innovation and ensuring that young entrepreneurs 

and startup businesses have the resources they need to succeed. One participant 

from the computer manufacturing industry emphasized that his company sought 

to ensure that its supply chain was diversified by partnering with small business. We can help drive prosperity and jobs in the U.S. by using small business 

services. What do you perceive as the major challenges to partnering with large 

manufacturers? 

A6. A large barrier is that many large companies do not know the quality of the 

services provided by smaller, newer companies. An Angie’s List kind of service for 
53 

smaller businesses would help. We are not aware of the existence of such a service, 

but if not it certainly seems like a great private sector opportunity. One of the key 

roles of the private sector-supported Startup America Partnership is the alignment 

of big companies with new businesses. While it is too early to evaluate the outcome 

of this project, data collected over the next year will provide insight into answering 

your question. 

Q7. How can large companies better support and mentor small businesses in order 

to ensure that small businesses and startups feel supported in their fields and 

have opportunity to grow? How do we get large companies interested in mentoring startups? Can we show these companies that helping to grow small business is beneficial to them as well? 

A7. The Startup America Partnership is encouraging large companies to offer precisely this kind of mentoring and support. In addition, the Kauffman Foundation 

has worked with or supported many mentoring organizations across the U.S., many 

of them having direct relationships with either a university (MIT Venture Mentor 

Service) or organizations like Young Presidents’ Organization or Entrepreneurs’ Organization. 
54 

Responses by Mr. Julian Mann, 

Co–Founder and Vice President, 

Product Development and Research, 

Skybox Imaging 

Questions Submitted by Subcommittee Chairman Ben Quayle 

Q1. Do you have any recommendations on ways that you think would help a small 

company like yours utilize federal facilities, including national laboratories and 

other user facilities? 

A1. First, there is a general lack of publicly available information regarding the 

types of facilities and infrastructure available at national laboratories and other 

similar facilities. A standard mechanism for searching for the available infrastructure at local facilities is a prerequisite for any general program that opens such facilities and infrastructure to public use. 

Secondly, there needs to be a formal mechanism that establishes a relationship 

between the federal entity and the company. This process needs to be far less burdensome than traditional contract establishment. 

Q2. I understand that Skybox is still a privately held company. What will factor into 

your decision-making process down the road when considering whether to go 

public? Would lower compliance costs and regulations factor into this decision? 

A2. The decision to go public will be informed by a number of factors. Such factors 

include capital requirements for corporate growth, financial status of the business, 

and regulatory compliance burden. It is an unarguable fact that the regulatory burdens placed upon publically traded companies are most burdensome to rapidly growing companies that are looking to go public. A graduated approach to compliance 

that allows a company to adapt over time to the regulatory environment in which 

mature publically traded companies operate would certainly ease such burdens and 

improve the likelihood that privately held companies consider trading in the public 

market. 

Questions Submitted by Ranking Subcommittee Member Donna Edwards 

Q1. In your testimony, you discuss the challenges that small businesses have in conducting collaborative research with universities and large businesses. Do you 

view these challenges as insurmountable? Is there anything that can be done to 

help facilitate more engagement and collaboration among these various players? 

If so, what? 

A1. I do believe that these challenges are predominantly insurmountable. The differences in mentality, operational tempo, and motivation make it extremely difficult 

for productive collaboration. This does not mean that universities and large companies do not play an important role in the overall innovation environment, however. 

Universities are an ideal ground for fundamental research to be conducted, before 

commercial viability for a given technology exists. Large companies, through small 

company acquisition, can significantly assist in the wide-scale adoption of new technologies by providing access to capital, sales and distribution networks, or integration with existing technologies. I believe that ensuring the health of these transfer 

mechanisms into and out of small technology companies is absolutely essential for 

the continued growth of the entrepreneurial technology sector. I also believe that 

a focus on collaborative research between fundamentally unaligned organizations is 

a misguided approach to fostering the desired sector growth. 

Q2. Some have proposed creating public-private research consortia—consisting of 

small and large businesses, universities, and government entities—to work together on precompetitive research challenges that are driven by industry need. 

The successful Semiconductor Research Corporation initiative is an example of 

such a consortium. In your opinion, do you believe there is value to these sorts 

of industry-defined research collaborations and should the Federal Government 

be doing more to encourage them? 

A2. I am not personally familiar with the work of the Semiconductor Research Corporation, so I cannot directly comment on their activity as a representative model 

for such public-private consortia. I believe that having forums for the public and private sector to communicate the areas in which technological innovation would be 

beneficial is not a bad idea. I do believe, however, that for such forums to be successful in their goal, they must strive to ensure that the line is drawn at identifying 

the problems that need solving, not the best solution. This is because large compa-
55 

nies are notoriously bad at predicting the technologies that will ultimately solve the 

problems that exist. Rather than focus on how to improve large companies’ or the 

Federal Government’s abilities to develop these new technologies, we need to recognize that small entrepreneurial companies are best at generating new technologies. 

As the ultimate customer of these new technologies, government and large corporations have a deep understanding of the needs, but not the transformative solutions 

that will ultimately meet these needs. Any increase in the number or activity of 

such public-private consortia must keep this in mind if they are to operate successfully. 

Q3. In your testimony, you mentioned the courses available to you as a student at 

Stanford to help educate and foster entrepreneurship. While Stanford is undoubtedly a leader in this area, there are many universities throughout the country that do not currently offer this type of education or these opportunities to 

their students. Do you believe this sort of entrepreneurial education should be 

made available to students throughout the country? If so, in your opinion, what 

are the key components of a successful entrepreneurial education program? What 

barriers exist to instituting these sorts of programs throughout the country? 

A3. I absolutely believe that replicating this kind of entrepreneurial education 

throughout the country is certainly possible, and a number of such programs have 

been successfully implemented at universities across the country to date. I do believe that there are a few key requirements, however, that need to be considered. 

First, these programs cannot be created in isolation from a strong technological research base within the university. Entrepreneurial education on its own is not particularly useful without transformative technologies to focus on commercializing. Additionally, several of the programs that I have observed fail to transfer the entrepreneurial activity outside the university. With a desire to realize the upside of this 

technology, many university programs end up incubating the entrepreneurial activity far too long. Ultimately, to ensure the success of such programs, universities 

must provide not only the education about entrepreneurship, but also the resources 

and guidance to transfer the concepts outside the university when the true pursuit 

of a commercial venture commences. 

Question Submitted by Representative Lamar Smith 

Q1. At our hearing, you explained that existing government acquisition models have 

not kept up with the pace of technological innovation in the private sector. 

Would you say the challenge lies in internal acquisition rules, the culture at acquisition departments, or a combination of the two? How could the process be 

altered to allow for the government to move rapidly to adopt new technology? 

A1. I believe that the challenge is certainly a combination of both antiquated acquisition rules and the culture within acquisition organizations, though both of these 

stem from a common problem. Traditional government acquisition has been designed around the idea that the government is at the forefront of technological development and is effectively designing custom solutions to meet heretofore-unmet 

needs. The reality today is that in a significant majority of cases, technology in the 

private sector has eclipsed the state of technology within the government. 

The acquisition process required to use commercial technologies in novel ways to 

meet government needs is certainly different from that of a custom technology acquisition. This difference has been further exacerbated by the fact that the private 

sector has moved from traditional technology acquisition to service subscriptions. 

This is most clearly exemplified in modern software, where Software-As-A-Service 

(SAAS) models have effectively replaced traditional approaches to software delivery. 

The private sector has adapted to this change by realizing that there is significant 

benefit to such a service-oriented model. The customer does not bear the technological risk of either the development or the ongoing operations of the solution. Unlike traditional acquisitions, where an initial development budget is approved, with 

little thought to the ongoing operational costs, in service-oriented models the customer needs to express the value that a given service provides on some sort of repeated basis (i.e., monthly, annually, etc.). These models provide better quality of 

service to customers, incentivize service providers to continue improving the systems 

that they deliver, and provide a more reliable ongoing revenue stream on which 

businesses can develop. 

Government acquisition is not designed to be able to acquire subscription services. 

These subscription models extend beyond the realm of just software as well; numerous companies are now providing Platform-As-A-Service (PAAS) or InfrastructureAs-A-Service (IAAS), providing the same type of quality of service and continuous 
56 

improvement benefits as SAAS. The ‘‘we must build it attitude’’ prevents asking the 

question ‘‘what is this worth to me?’’ This needs to be changed if government acquisition of new technologies has a chance of keeping up with the pace of technological 

innovation. 

Questions Submitted by Representative Randy Neugebauer 

Q1. I hear repeatedly from the small businesses in the 19th District of Texas that 

regulations and government intrusion are costing them valuable man hours of 

compliance and impacting their bottom line. Do you agree this is a problem? If 

yes, please provide and example of a regulation that you have witnessed impact 

a new business’ ability to grow. 

A1. I certainly agree that regulatory compliance has had a direct impact on 

Skybox’s bottom line. One set of regulations in particular is the ITAR. I reference 

a part of my previous written testimony to further explain: 

. . . As a satellite manufacturing company, virtually everything done by our engineering organization is governed under the ITAR. Even the most benign mechanical bracket can only be manufactured by an ITAR-certified machine shop. 

The vast majority of local machine shops are not ITAR certified, and have no 

interest in becoming certified due to the high cost, burdensome documentation 

requirements, and increased liability. As a result we have an artificially reduced 

supply market, which has resulted in our manufacturing costs being increased 

by a factor of 10. Furthermore, these machine shops are typically very busy, 

which means we have a lead time that is two to three times longer than if we 

were operating in a less regulated industry. 

Perhaps even more concerning is the fact that the ITAR regulations have had 

the unintended consequence of actually decreasing domestic competitiveness in 

the aerospace industry. As a relative newcomer to the industry, I have not seen 

the progression of the regulations over the years. What I have seen, however, 

is that when it comes to low-cost, transformative, satellite technologies, international developers have significantly surpassed the state of domestically developed technologies. A number of our high-performance specialty components are 

obtained from international suppliers. Additionally, when we have approached 

these suppliers about the possibility of co-development or manufacturing support, they have declined due to the fact that their primary customer base is outside the United States. International developers are rejecting the idea of deeper 

collaboration with American companies due to the concern that they will not be 

able to export the resulting technology to their existing customers due to ITAR; 

this is a real problem for American innovation. 

Q2. I also consistently hear from my constituents that regulatory uncertainty is making it more difficult for potential entrepreneurs to take the leap of faith and invest in starting a new business. Some of you alluded to this in your testimony. 

Could you please provide a specific example of this uncertainty, and explain how 

the Federal Government could act to relieve this uncertainty? 

A2. Regulatory uncertainty has not really been a driving consideration in our business. While regulatory burden has certainly provided hardship, we have not really 

focused on how shifting regulations may or may not affect our business going forward. We really just focused on the development of our technology, the cultivation 

of our customer base, and the belief that if we did these two things successfully, 

we would be able to find ways of navigating any changing regulatory landscape that 

we encountered. 

Q3. Have you observed any small startup businesses having difficulties obtaining 

loans or accessing capital? Have you observed any changes in banks’ underwriting standards or compliance costs affecting startups’ abilities to obtain 

loans? 

A3. I do not have relevant experience from which to develop a response to this 

question. 

Question Submitted by Representative Daniel Lipinski 

Q1. Describe your experience with federal R&D funding mechanisms, whether your 

companies do their manufacturing here in the U.S., and if there is anything 

Congress can do to better incentivize domestic production of inventions that 

began with federal R&D investments. 
57 

A1. Prior to my experience with Skybox, I had been somewhat involved in SBIR 

funding processes for a few different federal agencies. Skybox has not had any formal relationship with federal R&D funding to date. Skybox does conduct all of our 

manufacturing domestically (due to ITAR regulations), and ultimately this has 

made us less competitive with international competitors because our costs are inflated. Ultimately I believe that trying to artificially incentivize domestic production 

will be of greater long-term detriment than benefit. We as a Nation need to focus 

on the areas of technology and innovation where we maintain a competitive edge 

on the global market, not use taxpayer dollars to create artificial incentives that 

continue to diminish our global position. 

Questions Submitted by Representative Ben Ray Luja ́n 

Q1. Basic research is key to future innovation. But the direct products of basic research are publicly available, as it should be for the integrity of the scientific 

process. This means that entrepreneurs and innovators all over the world have 

access to this basic resource of new knowledge from which new innovative businesses can develop. So how can we foster the transfer of technology from our labs 

and universities to our entrepreneurs and innovators? 

A1. Ultimately, the knowledge conveyed through publicly available research is 

rarely sufficient to effectively commercialize the pertinent technology. Further, I believe that the concern that international innovators are going to take our entrepreneurial opportunity by cannibalizing our public research is misguided. The proportional amount of scientific innovation that the United States has been contributing 

to the global scientific community has been diminishing over the last 30 years. This 

is the real problem that we need to be addressing. As long as the United States 

continues to be a scientific powerhouse, we will continue to have a strong and growing technology entrepreneurship sector. If, instead, we continue to decline relative 

to the rest of the world, then our global position when it comes to entrepreneurship 

and innovation will certainly suffer. 

Q2. Recently, the President issued a memorandum to the heads of executive agencies 

directing them to improve the results from its technology transfer and commercialization activities. From your vantage point, what suggestions would you give 

to agency heads to accomplish this? 

A2. If executive agency heads want to increase the degree to which the technologies they develop are effectively commercialized, then they need to find ways of 

increasing the public’s visibility into the technologies that they have within their 

portfolio. From my perspective, the greatest barrier to commercialization of this 

technology is that there is a lack of general knowledge into the technological developments that have been conducted by our federal agencies. Furthermore, those entrepreneurs that are best positioned to realize the full potential of these technologies 

in the commercial market are often some of the most removed from the activities 

going on within our federal research and development organizations. 

Q3. The technology transfer process is full of difficulties. One of the most difficult 

is the gap, or valley of death as it’s called, where the federal agencies funding 

the basic research don’t want to fund the applied research and prototype development because they believe it to not be within their mission, and the private 

sector won’t fund the work because it is too risky with so many ways for the 

early stage good idea to turn out to not be a viable business. So how do we 

bridge this valley of death? 

A3. This so called ‘‘valley of death’’ is precisely the role that venture capital plays 

in spanning the gap between pure R&D funding and more traditional growth or 

debt capital sources. Ultimately, it is my experience that if the market potential of 

a technology is significant enough, then venture capital will gladly bear the technology risk associated with transitioning a technology from research to product. The 

issues that I have seen are that oftentimes innovators do a poor job of effectively 

determining and communicating the market potential for their technology. This is 

why I believe that an increase in entrepreneurial education in our Nation’s leading 

research institutions is essential to seeing growth in the innovation sector. 

Q4. Cooperative research and Development Agreements (CRADAs) are a common 

contracting mechanism for federal labs to partner with private entities to mature 

technologies to the point where private capital is willing to invest in the technology. If the government does not pay its portion of the CRADA work and requires the private entity to pay the entire cost, will this deter small businesses 
58 

from entering into CRADAs with labs and thereby reduce the amount of technologies that are transferred to the private sector? 

A4. I have very little experience with CRADAs and consequently don’t feel prepared to be able to answer this question effectively. 

Q5. Federally funded scientists could be a tremendous resource for small and startup businesses. In my State of New Mexico, we have two national laboratories 

and the State has a program to pay the time for personnel at these labs to provide technical assistance to small businesses. Whether it be help with what material to use or how best to analyze a complex business problem, small businesses throughout the State have made good use of this program. Is there something that could be done on a federal level to facilitate federally funded scientists 

providing technical assistance to small businesses? 

A5. I can certainly see a program such as this being of some interest; I do not believe necessarily that it will accomplish the stated goal of the Committee in increasing the amount of technology entrepreneurship throughout the Nation. Ultimately, 

access to scientific talent has not been one of the major challenges that we have 

faced in the growth of Skybox. Furthermore, I have a number of professional contacts that are researchers in federal labs, and I am unsure that a structure like this 

would effectively motivate their support. While financial compensation for the time 

that they spend working with companies is certainly appreciated, many of these researchers that I have talked to believe that his or her time is the limited resource. 

The opportunity cost of working with a small company rather than working on proposals that can further his or her own research projects simply does not add up for 

these researchers. It is my belief that the financial resources that would be used 

for a program like this would be better spent directly funding novel research rather 

than through a construct such as this. 

Q6. As Chair of the Congressional Hispanic Caucus’ Economy and Workforce Task 

Force, I recently held a roundtable with representatives from the technology industry to focus on fostering innovation and ensuring that young entrepreneurs 

and startup businesses have the resources they need to succeed. One participant 

from the computer manufacturing industry emphasized that his company sought 

to ensure that its supply chain was diversified by partnering with small business. We can help drive prosperity and jobs in the U.S. by using small business 

services. What do you perceive as the major challenges to partnering with large 

manufacturers? 

A6. At Skybox, we do not work with any large manufacturers. As a result, I cannot 

comment on the difficulty of partnering with large manufacturers. 

Q7. How can large companies better support and mentor small businesses in order 

to ensure that small businesses and startups feel supported in their fields and 

have opportunity to grow? How do we get large companies interested in mentoring startups? Can we show these companies that helping to grow small business is beneficial to them as well? 

A7. Large companies and startups do not work well together. Ultimately, when a 

startup is successful in a given field, it is typically detrimental to the large companies in that same field. On the other hand, it is beneficial to consumers, the economy, and the technological landscape at large. Furthermore, the ways in which large 

companies and startups operate is fundamentally different. If startups were to listen 

to the ‘‘recommendations’’ of large established companies, then transformative innovation would cease. As a Nation, we want innovators and their companies to continue to be the renegades within their respective industries if we are to continue 

to remain at the forefront of technological innovation. 
59 

Responses by Mr. Ray Rothrock, Partner, Venrock 

Question Submitted by Subcommittee Chairman Ben Quayle 

Q1. Do you believe the current budget environment offers an opportunity for smaller, innovative companies to compete for government contracts because acquisition officers will be increasingly looking for low-cost, high-efficiency options? 

How could acquisition officers be empowered by current systems to identify and 

pursue these options? 

A1. The goal for government acquisitions, whether high tech or low, goods or services, should be to maximize value for the taxpayer’s dollar. Even absent the critical 

budget environment of 2012, acquisition officers should always seek the highest return on government investment and procurement. I believe smaller, innovative companies can thrive in such an environment, given smaller startups’ superior ability 

to be nimble, more responsive to individual customers’ needs and lack of legacy cost 

burdens and overhead. Further, new small companies may have better products 

more suitable to current needs. Government can best help such small businesses by 

continuing to drive demand as it purchases its goods and services in the marketplace, encouraging private sector competition, holding vendors accountable and 

measuring value. 

Questions Submitted by Representative Randy Neugebauer 

Q1. I hear repeatedly from the small businesses in the 19th District of Texas that 

regulation and government intrusion are costing them valuable man hours of 

compliance and impacting their bottom line. Do you agree that this is a problem? If yes, please provide an example of a regulation that you have witnessed 

impact a new business’ ability to grow. 

A1. In the last decade or so, there has been a series of financial and accounting 

rules, regulation, and compliance mandates that while initially directed at larger 

companies, were disproportionately and mostly negatively impacting the bottom line 

of smaller companies; one might say an unintended consequence. One of the best 

examples of new compliance requirements that impact a small business’s bottom 

line is compliance with Sarbanes-Oxley (SOX) 404B. There are a number of challenges that small venture-backed companies face in complying with SOX 404, but 

I will focus my response on just a few. First, the cost of compliance with this regulation forces young companies to expend scarce resources, people, time, and capital, 

earlier in the process in order to be prepared and the ability to go public or be acquired by larger public companies. This diversion of resources is having an adverse 

impact on innovation and economic growth since in a capital-constrained startup, 

precious capital is taken from the work of innovation and manufacturing. The end 

result of these SOX compliance challenges is that small businesses that once aspired 

to become public companies are now questioning the benefits of going public or even 

merging with a public company. This is not in the Nation’s best interest, given that 

90% of a company’s growth and job creation comes after that company goes public. 

Studies show that significant job creation occurs when a venture-backed company 

goes public. In the last decade, however, the market for venture-backed initial public offerings (IPOs) has suffered. From Sarbanes Oxley (SOX) to the Global Settlement for Reg FD, regulations intended for larger multinational corporations have 

raised burdensome obstacles and compliance costs for startups trying to enter the 

pulic markets. The venture industry strongly supports regulation that protects investors where necessary, but that regulatory approach must account for the unique 

challenges faced by young venture-backed companies and their investors. There are 

opportunities within existing regulations to tier compliance so as not to overburden 

emerging growth, pre-public and public companies at at time when they need support from the government, ther auditors, and the markets. In addition, the venture 

capital industry supports regulatory and tax policies that seek to encourage small, 

emerging growth companies to go public on U.S. exchanges. Such policies promise 

to bolster the economic recovery, spur job growth, and maintain our global 

comppetitiveness. 

I would direct your attention to a report that was recently presented to the 

Deparment of Treasury entitled, ‘‘Rebuilding the IPO On-Ramp.’’ This report discusses many of the challenges faced by emerging growth companies and offers tangible solutions to those challenges. The report can be found on the NVCA Website, 

www.nvca.org. 
60 

Q2. I also consistently hear from my constituents that regulatory uncertainty is making it more difficult for potential entrepreneurs to take the leap of faith and invest in starting a new business. Some of you alluded to this in your testimony. 

Could you please provide a specific example of this uncertainty, and explain how 

the Federal Government could act to relieve this uncertainty? 

A2. One of the most impactful things the Federal Government can do to help the 

bottom line for small businesses is to create a regulatory and tax policy environment 

with as much certainty and predictability as possible. Entrepreneurs and investors 

are willing to take risks if we have a sense of the ‘‘rules of the road’’ and that those 

rules will not be subject to abrupt changes or lapses. One of the best examples of 

this uncertainty is around tax credits that are often allowed to expire and then are 

reauthorized retroactively. This uncertainty makes it very difficult to strategically 

plan and budget growth for small businesses. It is hard to plan for the long term 

if changes substantial and fundamental changes occur in the short term. 

Q3. Have you observed any small startup businesses having difficulties obtaining 

loans or accessing capital? Have you observed any changes in banks’ underwriting standards or compliance costs affecting startups’ abilities to obtain 

loans? 

A3. Loans into venure capital startups become available when a comany starts to 

produce revenues and cash flow. This cash flow is required to service the loan as 

equity capital and is far too expensive to be used for such uses. Generally, when 

startups are backed by strong venture firms, deals with commercial banks can be 

had, but at additional costs. Banks knowledgeable of the risks in startups and with 

the ability to complete due diligence have nonetheless pulled back from commercial 

loans to startups or added terms to the deals that basically increase the cost of debt 

to the company. These increased costs consume resources otherwise dedicated to innovation and other critical elements of the company and in general hamper growth 

as much as they contribute to it. Even further, banks are looking to the venture 

capital backers for guarantees, something they never asked for even three years ago. 

Personal guarantees are extraordinarily expensive but yet the banks are requiring 

it. it is sometimes easier to obtain equity capital rather than loan capital in the current environment. 

Questions Submitted by Ranking Subcommittee Chairman Donna Edwards 

Q1. Some have proposed creating public-private research consortia—consisting of 

small and large businesses, universities, and government entities—to work together on precompetitive research challenges that are driven by industry need. 

The successful Semiconductor Research Corporation initiative is an example of 

such an consortium. In your opinion, do you believe there is value to these sorts 

of industry-defined research collaborations and should the Federal Government 

be doing more to encourage them? 

A1. Public-private partnerships or consortia have much to commend them and 

often receive lots of public support and outpouring of praise, but they are too often 

seen as a panacea or Holy Grail for federal research investments. In our experience, 

public-private consortia are constructive but hardly game changing. Private sector 

players rarely share their ‘‘best’’ proprietary technologies or deploy their most productive researchers in such collaborations, nor would we expect them to. I believe 

federal research initiatives should prioritize research outcomes over process inputs. 

Taxpayers benefit most when such research initiatives yield desired innovations 

leading to companies being formed, rather than collaboration without consequences 

of any economic meaning. 

Q2. In his testimony, Mr. Mann mentioned the courses available to him as a student 

at Stanford to help educate and foster entrepreneurship. While Stanford is undoubtedly a leader in this area, there are many universities throughout the country that do not currently offer this type of education or these opportunities to 

their students. Do you believe this sort of entrepreneurial education should be 

made available to students throughout the country? If so, in your opinion. what 

are the key components of a successful entrepreneurial education program? What 

barriers exist to instituting these sorts of programs throughout the country? 

A2. Entrepreneurship education is important, impactful, and in every business 

school in the country. The subject is ‘‘red hot’’ and ubiquitous, enjoying tremendous 

attention and scholarship. I am privileged to frequently guest lecture on topics including ‘‘what VCs look for,’’ ‘‘how to best position companies seeking funding,’’ and 

‘‘growing businesses from concept to commerce.’’ In fact, educating entrepreneurs is 
61 

a core responsibility for all venture capitalists, as entrepreneurs are the lifeblood 

of the venture business, and the best VCs tend to be the best teachers, hand holders, and advisers. In general, all this activity is good if for nothing more than to 

provide alternatives and to make people seeking economic growth aware of this 

path. 

The only obvious barriers to further proliferation of entrepreneurship education 

programs are high tuition rates, the inherent ‘‘busy-ness’’ of those best able to teach 

from experience, and the fact that entrepreneurship, like ‘‘innovation,’’ is a subjective and inexact science. For what it’s worth, in my experience, the entrepreneurship education that is most impactful occurs outside the classroom, in networks that 

connect real-time entrepreneurs with peers, veteran company builders, and funders. 

It occurs when people participate in entrepreneurial companies with fast growth 

and observe first hand the challenges, opportunities, and thrill of participating in 

one. Entrepreneurs are largely born, but there are many skills and lessons that can 

be shared in the classroom to lessen the failure rate. 

Question Submitted by Representative Daniel Lipinski 

Q1. Describe your experiences with federal R&D funding mechanisms, whether your 

companies do their manufacturing here in the U.S., and if there is anything 

Congress can do to better incentivize domestic production of inventions that 

began with federal R&D investments. 

A1. The United States has led in the creation of the best and most successful and 

recognizable companies, and in some cases creating whole industries, in nearly 

every major industrial segment since World War II. United States R&D, public and 

private, has been the bedrock of those sectors—whether it is the aerospace industry, 

the telecommunications industry, the semiconductor industry, the personal computing industry, the biotechnology industry, the Internet, and now the clean energy 

sector. Federal Government support for early-stage R&D has been the key determinant that has led to inventions in all of these areas. 

Different sectors and technologies require different tools to best incentivize domestic production of inventions that were incubated with federal R&D investments, but 

there are some actions that can be taken that will lead to improvements across all 

sectors. 

First, high-tech companies that leverage federal R&D into commercial enterprises 

often require human capital that is skilled in science, mathematics, and engineering. Too often the U.S. workforce alone cannot fill those positions. Allowing highskilled immigrants who perform jobs that cannot be filled by U.S. workers to remain 

in the country is a good first step. Foreign-born entrepreneurs contribute a great 

deal to the U.S. economy and should be allowed to remain in the U.S. after their 

schooling rather than going back to their home country to start up their new business there. The new Start-Up Visa Act, introduced by Reps. Lofgren and Polis, is 

an excellent piece of legislation that will go a long way toward creating jobs and 

keeping jobs here in the U.S. We can improve U.S. competitiveness and innovation 

when we embrace foreign-born entrepreneurs that want to create U.S. companies 

with manufacturing jobs. I don’t have statistics for the venture industry, but a full 

40% of the entrepreneurs in my firm’s portfolio were foreign born. 

The job creation potential in the clean energy sector is enormous. Energy is the 

largest market in the world, and the United States represents 25% of the world’s 

energy. The U.S. can and should take a leadership position in a worldwide clean 

energy technology marketplace, but it will take significant and sustained federal 

commitment to make this happen. Initial R&D innovation in technologies like hydro 

power (Hoover Dam), nuclear power (USS Nautilus), solar (NASA), and wind 

(DARPA) were derived out of our national labs and government-sponsored projects. 

The resulting industries represent the best means for leveraging this federal R&D 

into domestic manufacturing jobs. In the past, the U.S. has been an exporter of critical energy technologies. This can and should continue but requires sustained investment by the Federal Government. 

The biggest challenge in getting to scale on emerging clean energy technologies 

is getting through the ‘‘valley of death’’—that period of time and investment between a successful new energy product and fist commercial deployment. The cost of 

commercial deployment in the capital-intensive energy sector is simply too high for, 

and the public equity markets do not have the risk appetite for, these projects either. Debt financing is the only way to bridge this gap. The federal balance sheet 

with financing allows for the highest possible chance of success. Congress should 

look at enacting a Clean Energy Deployment Administration (CEDA), similar to 

what Senators Bingaman and Murkowski have introduced. CEDA would provide a 
62 

government-backed lending authority for high-risk, capital-intensive, and first-of-akind manufacturing facilities. After the first or second facility is built and the risks 

are reduced, traditional lending will kick in as banks see and understand better the 

technology and benefits. Enacting CEDA would be the most important thing in the 

short run that Congress can do to incentivize domestic manufacturing. 

Questions Submitted by Representative Ben Ray Luja ́n 

Q1. Basic research is key to future innovation. But the direct products of basic research are pulicly available, as it should be for the integrity of the scientific 

process. This means that entrepreneurs and innovators all over the world have 

access to this basic resource of new knowlege from which new innovative businesses can develop. So how can we foster the transfer of technology from our labs 

and universities to our entrepreneurs and innovators? 

A1. The great technology companies of the late 20th Century were all started by 

teams of people—Intel, Apple, Microsoft, Google, Cisco, Genentech, Gilead, and on 

and on. In all cases, there were a technologist and a business person. A national 

lab or university laboratory naturally attracts the technologist who spends all their 

time on innovation. In my experiences, there are no natural business persons at a 

national lab. Coupling the technologist with a potential business entrepreneur is 

what is required. Professional researchers need access to the business side, and the 

business people need access to the researchers and their innovations. It cannot be 

forced or willed by policy. 

I could see a series of conferences, e.g., adult science fairs, which expose both 

sides of the equation to each other. There they could learn to communicate with 

each other, explain their ideas, get other ideas, and take those to the lab or start 

the process of exiting the lab to a commercial setting. ARPA–E with its annual conference does an excellent job of bringing all the companies it has discovered (most 

are not ARPA–E investments) to one place for a week. Professional investors, engineers, managers, and many other walks of life all interact and the magic of startups 

continues as relationships are consummated. 

Q2. Recently, the President issued a memorandum to the heads of executive agencies 

directing them to improve the results from its technology transfer and commercialization activities. From your vantage point, what suggestions would you give 

to agency heads to accomplish this? 

A2. I applaud the President’s directive to federal agency executives to improve 

technology transfer and commercialization activities. Incentives should be used to 

encourage those agency leaders in this regard. Maximizing on the Federal Government’s ‘‘crown jewels’’ will be a boon to innovation and job creation in the near term. 

Each agency should asssemble a commericalization team that includes a network of 

experienced entrepreneurial managers, investors (VCs), and researchers to share 

best practices and experience. The agencies should publish often and broadly on 

their work and projects. NASA Tech Briefs is one such publication that is circulated 

at my firm. 

As described in #1 above, investors and entrepreneurs should have the ability to 

‘‘walk the halls’’ of federal research institutions, meet and comingle with scientists, 

build relationships, and discuss ideas and opportunities with researchers, Steve 

Jobs is famous for having walked the halls of Xerox PARC and saw the mouse and 

windows that inspired the Macintosh computer. Doing all we can to build bridges 

between the federal researchers and the outside community will help the commercialization process and maximize the taxpayer investment. 

Q3. The technology transfer process is full of difficulties. One of the most difficult 

is the gap, or valley of death, as it is called, where the federal agencies funding 

the basic research don’t want to fund the applied research and prototype development because they believe it to not be within their mission, and the private 

sector won’t fund the work because it is too risky with so many ways for the 

early stage good idea to turn out to not be a viable business. So how do we 

bridge this valley of death? 

A3. Licensing challenges are critical to new company formation when taking from 

federally funded institutions. The license process must be streamlined and shortened to no more than 90 days. Standardization will help a lot in shortening the 

process and making it understandable for all. Small businesses are harmed by cumbersome, custom and lengthy licensing processing. Also, license agreements need exclusivity in order to attract private, outside investment. 
63 

Q4. Cooperative Research and Development Agreements (CRADAs) are a common 

contracting mechanism for federal labs to partner with private entities to mature 

technologies to the point where private capital is willing to invest in the technology. If the government does not pay its portion of the CRADA work and requires the private entity to pay the entire cost, will this deter small businesses 

from entering into CRADAs with labs and thereby reduce the amount of technologies that are transferred to the private sector? 

A4. I have not had any experience with Cooperative Research and Development 

Agreements (CRADAs) so I am not well positioned to offer opinions on how that program will be impacted by changes to the federal payment portion. 

Q5. Federally funded scientists could be a tremendous resource for small and startup businesses. In my State of New Mexico, we have two national laboratories, 

and the State has a program to pay the time for personnel at these labs to provide technical assistance to small businesses. Whether it be help with what material to use or how best to analyze a complex business problem, small businesses throughout the State have made good use of this program. Is there something that could be done on a federal level to facilitate federally funded scientists 

providing technical assistance to small businesses? 

A5. Getting federal scientists out of the labs and integrated into the private sector 

can potentially yield significant benefits. A small percentage of leading scientists is 

generally responsible for most of the significant breakthroughs that occur. So it 

makes good sense to focus entrepreneurial services, funding, and support on the top 

scientists with breakthrough ideas. 

Top scientists should be given time, perhaps one day per week, to consult with 

startups. Leading universities offer this opportunity and it is beneficial to both 

sides. Lab scientists should be able to fully participate in entrepreneurial activities 

without fear of losing their federal benefits (i.e., pension, health insurance coverage) 

and without fear of conflict of interest. The standard of conflict of interest for scientists involved in entrepreneurial activity should be ‘‘actual conflict’’ as opposed to 

the ‘‘appearance of conflict’’ standard. The appearance standard allows program 

managers the ability to curtail entrepreneurial activities by pointing to unrealistic 

or imagined conflicts. In general, conflicts of interest exist at every layer of society. 

It is the lack of transparency of conflicts that causes trouble, not the tranparency 

or admission of relationships or conflicts. 

Q6. As Chair of the Congressional Hispanic Caucus’ Economy and Workforce Task 

Force, I recently held a roundtable with representatives from the technology industry to focus on fostering innovation and ensuring that young entrepreneurs 

and startup businesses have the resources they need to succeed. One participant 

from the computer manufacturing industry emphasized that his company sought 

to ensure that its supply chain was diversified by partnering with small business. We can help drive prosperity and jobs in the U.S. by using small business 

services. What do you perceive as the major challenges to partnering with large 

manufacturers? 

A6. Large manufacturers are essential to small startup companies as customers, 

suppliers, and sources of talent. Large manufacturers likewise recognize and appreciate the benefits of small and medium customers, suppliers, and targets for strategic acquisition. Last year, the Business Roundtable produced an analysis of the 

symbiotic relationship between small and large businesses in the United States, 

quantifying many of the mutual benefits: http://businessroundtable.org/studiesand-reports/mutual-benefits-shared-growth-small-and-large-companies-workingtogeth/. 

Venture capitalists do not generally see a market failure here for which government action is needed or warranted. Our competitive economy enables and encourages partnering driven by economics. Likewise the risks of unintended consequences 

are always high when policy makers attempt to influence market behaviors to assist 

indiviual classes of businesses. Small businesses tend to suffer along with big businesses when government limits access to capital, increases operation costs through 

regulation, or alters the cost-benefit equation to advance social policy goals. Public 

officials looking to help small businesses might best serve the marketplace through 

use of their bully pulpit, to highlight entrepreneurial role models and success stories. 

Q7. How can large companies better support and mentor small businesses in order 

to ensure that small businesses and startups feel supported in their fields and 

have opportunity to grow? How do we get large companies interested in men-
64 

toring startups? Can we show these companies that helping to grow small business is beneficial to them as well? 

A7. Many large technology companies whose roots were entrepreneurial or were 

venture backed have their own venture programs in place. The NVCA encourages 

this and has an entire program supporting corporate venture capital. Large companies provide not just capital but often technical expertise that may be very hard to 

acquire for the startup, infrastructure in the case of labs or special equipment and, 

importantly, demand for the products produced by the smaller startups. The vast 

resources of, for example, an Intel, are truly unique and often sought by startups. 

Rarely do corporates invest with the assistance of pure venture capital groups. Invariably, when a corporation engages in the process of small company formation, 

there is an advocate within that company’s senior management ranks. Corporations 

are driven by economics and results for their customers and shareholders. It would 

be helpful if federal policy were explicit in the treatment of certain tax policies, investment credits, and other accounting elements as they may be applied to company 

formation and startup company support. 
65 

Responses by Mr. Steve Dubin, Former CEO, Martek Biosciences, 

and Senior Advisor to DSM Nutritional Products 

Questions Submitted by Representative Neugebauer 

Q1. I hear repeatedly from the small businesses in the 19th District of Texas that 

regulations and government intrusion are costing them valuable man hours of 

compliance and impacting their bottom line. Do you agree that this is a problem? If yes, please provide an example of a regulation that you have witnessed 

impact a new business’ ability to grow. 

A1. I do not think there is any one thing that creates the problem. I think it is 

the totality of federal, State, and local regulations that creates a sense of being overwhelmed when trying to start a new business. There are withholding issues, licensing and permitting requirements, health care issues, and overly complex taxation 

issues, among others. It is hard to start a one- or two-person business (which will 

hopefully grow to hire many employees) when you have so many issues to face. 

Q2. I also consistently hear from my constituents that regulatory uncertainty is making it more difficult for potential entrepreneurs to take the leap of faith and invest in starting a new business. Some of you alluded to this in your testimony. 

Could you please provide a specific example of this uncertainty and explain how 

the Federal Government could act to relieve the uncertainty? 

A2. Aside from the current tax and economic uncertainties, in DSM/Martek’s nutrition field, for example, there are many uncertainties relating to health claims and 

regulatory procedures at the FDA that make it extremely costly for large companies, 

let alone small companies, to do business in the space. Why invest all of the time 

and money that goes into inventing a new nutritional product if the regulatory path 

is unclear and if a nutritional product will be held to unreasonable drug-type standards before you can say anything about your product? In addition, this uncertainty 

opens the door for plaintiff’s attorneys to bring suits related to claims. 

Q3. Have you observed any small startup businesses having difficulties obtaining 

loans or accessing capital? Have you observed any changes in banks’ underwriting standards or compliance costs affecting startups’ abilities to obtain 

loans? 

A3. I have not dealt with bank debt in awhile, but equity capital is less abundant 

for long-term bioscience-related deals than I have seen in some time. 

Questions Submitted by Representative Edwards 

Q1. Some have proposed creating public-private research consortia—consisting of 

small and large businesses, universities, and government entities—to work together on precompetitive research challenges that are driven by industry need. 

The successful Semiconductor Research Corporation initiative is an example of 

such an consortium. In your opinion, do you believe there is value to these sorts 

of industry-defined research collaborations and should the Federal Government 

be doing more to encourage them? 

A1. I think the concept of public-private research consortia is an excellent one. This 

is especially true where there is a big problem to be solved and the early work may 

be too risky or too complex to be performed by any one entity. 

Q2. In his testimony, Mr. Mann mentioned the courses available to him as a student 

at Stanford to help educate and foster entrepreneurship. While Stanford is undoubtedly a leader in this area, there are many universities throughout the country that do not currently offer this type of education or these opportunities to 

their students. Do you believe this sort of entrepreneurial education should be 

made available to students throughout the country? If so, in your opinion. what 

are the key components of a successful entrepreneurial education program? What 

barriers exist to instituting these sorts of programs throughout the country? 

A2. I am not an expert on this one, but I do know that more and more universities 

are emphasizing entrepreneurial education. The University of Maryland, for instance, is one such university. I think that the cultural aspects that foster entrepreneurs are as important as any specific curriculum. Such a culture can be fostered 

by such things as celebrating successes, rewarding professors that engage in entrepreneurial activities and bringing in notable entrepreneurs to speak to students. 
66 

Question Submitted by Representative Lipinski 

Q1. Describe your experiences with federal R&D funding mechanisms, whether your 

companies do their manufacturing here in the U.S., and if there is anything 

Congress can do to better incentivize domestic production of inventions that 

began with federal R&D investments. 

A1. My experience was excellent with the SBIR program. Martek would not have 

been successful without it. Most of Martek’s production was done in the U.S., in 

Kentucky, South Carolina, and New Jersey. 

Questions Submitted by Representative Luja ́n 

Q1. Basic research is key to future innovation. But the direct products of basic research are pulicly available, as it should be for the integrity of the scientific 

process. This means that entrepreneurs and innovators all over the world have 

access to this basic resource of new knowlege from which new innovative businesses can develop. So how can we foster the transfer of technology from our labs 

and universities to our entrepreneurs and innovators? 

A1. The fact that research is publically available may not always be a good thing. 

Companies will not invest in expensive commercialization efforts without being able 

to have intellectual property protection or other rights that protect their investments. 

Q2. Recently, the President issued a memorandum to the heads of executive agencies 

directing them to improve the results from its technology transfer and commercialization activities. From your vantage point, what suggestions would you give 

to agency heads to accomplish this? 

A2. The first step would be to incentivize government employees for their inventions. The second would be to publicize and catalogue any available technology. The 

third would be to have a licensing process that is fair to both sides and easy to use. 

Q3. The technology transfer process is full of difficulties. One of the most difficult 

is the gap, or valley of death as it’s called, where the federal agencies funding 

the basic research don’t want to fund the applied research and prototype development because they believe it to not be within their mission, and the private 

sector won’t fund the work because it is too risky with so many ways for the 

early stage good idea to turn out to not be a viable business. So how do we 

bridge this valley of death? 

A3. I think this one is impossible to answer on a global basis. It is more of a caseby-case thing, but if the incentives are properly aligned, it believe that the risk can 

also be properly aligned. 

Q4. Cooperative Research and Development Agreements (CRADAs) are a common 

contracting mechanism for federal labs to partner with private entities to mature 

technologies to the point where private capital is willing to invest in the technology. If the government does not pay its portion of the CRADA work and requires the private entity to pay the entire cost, will this deter small businesses 

from entering into CRADAs with labs and thereby reduce the amount of technologies that are transferred to the private sector? 

A4. I believe that businesses will be skeptical if the government does not share in 

the costs. 

Q5. Federally funded scientists could be a tremendous resource for small and startup businesses. In my State of New Mexico, we have two national laboratories, 

and the State has a program to pay the time for personnel at these labs to provide technical assistance to small businesses. Whether it be help with what material to use or how best to analyze a complex business problem, small businesses throughout the State have made good use of this program. Is there something that could be done on a federal level to facilitate federally funded scientists 

providing technical assistance to small businesses? 

A5. The New Mexico program sounds like a great one. Why not copy that on a national basis? 

Q6. As Chair of the Congressional Hispanic Caucus’ Economy and Workforce Task 

Force, I recently held a roundtable with representatives from the technology industry to focus on fostering innovation and ensuring that young entrepreneurs 

and startup businesses have the resources they need to succeed. One participant 
67 

from the computer manufacturing industry emphasized that his company sought 

to ensure that its supply chain was diversified by partnering with small business. We can help drive prosperity and jobs in the U.S. by using small business 

services. What do you perceive as the major challenges to partnering with large 

manufacturers? 

A6. In my experience, there are two main problems. First is convincing large manufacturers that the smaller company is financially viable and stable enough to be 

relied upon, and second, it takes so much time for a large company to make a decision. Both are related to the larger companies’ aversion to risk. 

Q7. How can large companies better support and mentor small businesses in order 

to ensure that small businesses and startups feel supported in their fields and 

have opportunity to grow? How do we get large companies interested in mentoring startups? Can we show these companies that helping to grow small business is beneficial to them as well? 

A7. I think everyone benefits when more small companies benefit. Larger companies look at the matter more narrowly most of the time, however. Most procurement 

departments are narrowly focused on cost and quality and generally do not take the 

bigger picture into account. I think it is a matter of raising the awareness at the 

top of companies that this is important to everyone and gaining an understanding 

of what larger companies require in order to be more responsive to smaller companies. 

(69) 

Appendix 2 

ADDITIONAL MATERIAL FOR THE RECORD
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REBUILDING THE IPO ON-RAMP: 

PUTTING EMERGING COMPANIES AND THE JOB MARKET BACK ON THE ROAD TO

GROWTH
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