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FULL COMMITTEE HEARING ON 

THE IMPORTANCE OF TECHNOLOGY 

IN AN ECONOMIC RECOVERY 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

APRIL 22, 2009 

Small Business Committee Document Number 111-016 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

DENNIS MOORE, Kansas 

HEATH SHULER, North Carolina 

KATHY DAHLKEMPER, Pennsylvania 

KURT SCHRADER, Oregon 

ANN KIRKPATRICK, Arizona 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

DAN LIPINSKI, Illinois 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

PARKER GRIFFITH, Alabama 

DEBORAH HALVORSON, Illinois 

SAM GRAVES, Missouri, Ranking Member 

ROSCOE G. BARTLETT, Maryland 

W. TODD AKIN, Missouri 

STEVE KING, Iowa 

LYNN A. WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BLAINE LUETKEMEYER, Missouri 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KAREN HAAS, Minority Staff Director 

(II) 

STANDING SUBCOMMITTEES 

Subcommittee on Contracting and Technology 

GLENN NYE, Virginia, Chairman 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

KURT SCHRADER, Oregon 

DEBORAH HALVORSON, Illinois 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

PARKER GRIFFITH, Alabama 

AARON SCHOCK, Illinois, Ranking 

ROSCOE BARTLETT, Maryland 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

GLENN THOMPSON, Pennsylvania 

Subcommittee on Finance and Tax 

KURT SCHRADER, Oregon, Chairman 

DENNIS MOORE, Kansas 

ANN KIRKPATRICK, Arizona 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

DEBORAH HALVORSON, Illinois 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

VERN BUCHANAN, Florida, Ranking 

STEVE KING, Iowa 

TODD AKIN, Missouri 

BLAINE LUETKEMEYER, Missouri 

MIKE COFFMAN, Colorado 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, Pennsylvania, Chairman 

HEATH SHULER, North Carolina 

BRAD ELLSWORTH, Indiana 

PARKER GRIFFITH, Alabama 

MARY FALLIN, Oklahoma, Ranking 

LOUIE GOHMERT, Texas 

(III) 

Subcommittee on Regulations and Healthcare 

KATHY DAHLKEMPER, Pennsylvania, Chairwoman 

DAN LIPINSKI, Illinois 

PARKER GRIFFITH, Alabama 

MELISSA BEAN, Illinois 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

LYNN WESTMORELAND, Georgia, Ranking 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

Subcommittee on Rural Development, Entrepreneurship and Trade 

HEATH SHULER, Pennsylvania, Chairman 

MICHAEL MICHAUD, Maine 

BOBBY BRIGHT, Alabama 

KATHY DAHLKEMPER, Pennsylvania 

ANN KIRKPATRICK, Arizona 

YVETTE CLARKE, New York 

BLAINE LUETKEMEYER, Missouri, Ranking 

STEVE KING, Iowa 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

(IV) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1 

Graves, Hon. Sam .................................................................................................... 2 

WITNESSES 

Brown Jr., Mr. Edsel M. , Esq, Assistant Administrator, Office Of Technology, 

U.S. Small Business Administration .................................................................. 3 

Caccuitto, Mr. Michael, Assistant Director, Office of Small Business Programs, SBIR/STTR Program Administrator, U.S. Department of Defense ..... 5 

Goodnight, MS. Jo Anne, NIH SBIR/STTR Program Coordinator, Office of 

Extramural Research, National Institutes of Health, U.S. Department of 

Health and Human Services ............................................................................... 6 

James, Mr. Larry, Acting SBIR/STTR Program Manager, Office of Science, 

U.S. Department of Energy ................................................................................. 8 

Narayanan, Mr. Kesh S.,Division Director, Industrial Innovations and Partnerships (IIP), Directorate For Engineering, National Science Foundation ... 9 

Green, Mr. Joshua, General Partner, MDV-Mohr Davidow Ventures, Menlo 

Park, CA, On Behalf of The National Venture Capital Association ................ 24 

King, Ms. Rachel, Chief Executive Officer, Glycomimetics, Inc., On Behalf 

of Biotechnology Industry Organization ............................................................. 26 

Stocker, Mr. John, Senior Vice President, Federal Solutions, Lynntech, Inc., 

College Station, TX .............................................................................................. 28 

Rosellini, Mr. Will, Chief Executive Officer, Microtransponder Inc., Dallas, 

Texas, On Behalf of Advanced Medical Technology Association ...................... 30 

(V) 

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 39 

Graves, Hon. Sam .................................................................................................... 41 

Brown Jr., Mr. Edsel M. , Esq, Assistant Administrator, Office Of Technology, 

U.S. Small Business Administration .................................................................. 43 

Caccuitto, Mr. Michael, Assistant Director, Office of Small Business Programs, SBIR/STTR Program Administrator, U.S. Department of Defense ..... 47 

Goodnight, Ms. Jo Anne, NIH SBIR/STTR Program Coordinator, Office of 

Extramural Research, National Institutes of Health, U.S. Department of 

Health and Human Services ............................................................................... 62 

James, Mr. Larry, Acting SBIR/STTR Program Manager, Office of Science, 

U.S. Department of Energy ................................................................................. 70 

Narayanan, Mr. Kesh S.,Division Director, Industrial Innovations and Partnerships (IIP), Directorate For Engineering, National Science Foundation ... 81 

Green, Mr. Joshua, General Partner, MDV-Mohr Davidow Ventures, Menlo 

Park, CA, On Behalf of The National Venture Capital Association ................ 93 

King, Ms. Rachel, Chief Executive Officer, Glycomimetics, Inc., On Behalf 

of Biotechnology Industry Organization ............................................................. 104 

Stocker, Mr. John, Senior Vice President, Federal Solutions, Lynntech, Inc., 

College Station, TX .............................................................................................. 109 

Rosellini, Mr. Will, Chief Executive Officer, Microtransponder Inc., Dallas, 

Texas, On Behalf of Advanced Medical Technology Association ...................... 115 

(VI) 

(1) 

FULL COMMITTEE HEARING ON 

THE IMPORTANCE OF TECHNOLOGY 

IN AN ECONOMIC RECOVERY 

Wednesday, April 22, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 1:09 p.m., in Room 

2360, Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chair of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Moore, Dahlkemper, Ellsworth, Sestak, Bright, Graves, Luetkemeyer, and Thompson. 

Chairwoman VELA ́ ZQUEZ. I call this hearing of the Small Business Committee to order. 

As Americans, we take great pride in our ability to innovate. 

Let’s not forget, it was our engineers who created the Model T; our 

scientists who sent the first man to the moon; and our tech entrepreneurs who created the world’s favorite new distraction. Yes, we 

can all thank Mark Zuckerberg for Facebook.com. 

From cyberspace to the health care sector, this country has an 

impressive track record of innovation. While the economy may be 

suffering, that pioneering spirit is still alive and well. This is largely thanks to our nation’s entrepreneurs. If we have learned anything from the economic crisis, it is that the policies of the past do 

not work. 

We need to change the way that America does business, beginning with an increased focus on small firms. Those are the companies bringing fresh ideas to the table and new products to market. 

In fact, entrepreneurs produce 13 times more patents per employee 

than big businesses. Much of that innovation is powered by research and development grants, the largest of which is the Small 

Business Innovation Research, or SBIR, program. 

In today’s hearing, we are going to take a look at that initiative. 

We will examine its role in spurring innovation and discuss obstacles preventing SBIR from reaching its full potential. 

Since first established in 1982, SBIR has helped launch tens of 

thousands of successful research projects. Every year, the program 

makes a $2.2 billion investment in small firms, an infusion that 

gets 1,500 new companies off the ground. It also serves as a driving 

force behind our most inventive businesses. As a result of SBIR, we 

have seen breakthroughs in everything from antivirus software to 

wireless technology for BlackBerrys. But the program doesn’t just 

spark new ideas; it helps generate jobs, too. 

2 

High growth start-ups, the kind that receive SBIR grants, are 

prolific job creators. In fact, the employment growth rate for these 

businesses is nearly four times of that of bigger firms. Meanwhile, 

40 percent of all high-tech workers, from engineers to computer 

programmers, are employed by these kinds of companies. 

The only thing more impressive than the jobs created through 

SBIR are the products that come out of it. Year after year, SBIRbacked businesses account for a quarter of U.S. R&D winners. And 

yet it is clear that the initiative has not reached its full potential. 

The majority of products developed through the program never 

make it to market. There are a number of reasons for this, not 

least of all being a lack of capital. 

Innovation is a resource-intensive process. It takes time and 

money to carry a new product from the laboratory to the marketplace. As a result, entrepreneurs often struggle to bridge the gap. 

SBIR-backed firms should have access to all of the tools they need, 

including venture capital. At a time when capital is increasingly 

hard to come by, it doesn’t make sense to limit funding options for 

small businesses. It should be up to entrepreneurs themselves, not 

Washington bureaucrats, to decide how these firms are financed. 

Last Congress, the House passed a bill to modernize and extend 

SBIR. Unfortunately, that legislation never made it out of the Senate. With people losing their jobs and businesses closing their 

doors, programs like SBIR need to be running at full capacity, especially considering the role that entrepreneurs play in economic 

recovery. These are the businesses willing to take risks and help 

rebuild our economy. With the necessary tools, they can lay the 

groundwork for a better, more innovative way of doing business. 

I am pleased our witnesses can join us today, and I thank them 

in advance for their testimony. 

With that, I yield to ranking member graves for his opening 

statement. 

[The statement of Chairwoman Vela ́zquez is included in the appendix at page 39.] 

Mr. GRAVES. Thank you, Madam Chair. 

I appreciate everyone taking the time to be with us here today 

about the Small Business Innovation Research, or SBIR, program. 

We have quite a few witnesses here that we will be hearing from, 

and I am going to give some brief remarks right now. 

Today’s hearing represents the beginning of the committee’s 

work to review and reauthorization the SBIR program. Today we 

will focus on how the SBIR reauthorization can be better structured and its role as a vehicle of early stage development of innovative technologies. This program is an example of a highly successful 

Federal initiative designed to encourage economic growth and innovation within the small business community. Government assistance and funding can be critical to the start-up and development 

stages of small businesses. Not only does it spur growth in individual companies, the program stresses the importance of expanding and diversifying research opportunities to small businesses. 

Created in 1982, the SBIR program offers competition-based 

awards to stimulate technological innovation among firms while 

providing government agencies new, cost-effective technical and scientific solutions to meet their diverse needs. 

3 

The development of this program is not only critical to the 

unique needs of each of the participating Federal agencies but also 

to our national economy. Small businesses invigorate the U.S. economy by introducing new products and cheaper ways of doing business, sometimes with substantial economic benefits. They play a 

key role in introducing products to the markets, often responding 

quickly to new market opportunities. Some of the greatest technological innovations came about from small business owners tinkering in their labs and workshops. 

The SBIR program provides those innovators with an opportunity to grow their ideas into practice, provide jobs, and improve 

our economy. 

I remain hopeful that legislation drafted by the committee will 

maintain the integrity of the program while not limiting participation. We must work to find an appropriate solution that funds the 

best science while wisely investing taxpayer dollars. 

The SBIR program’s track record speaks for itself. I am eager to 

hear the testimony this afternoon. 

I look forward to working with you, Madam Chairwoman. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I welcome the witnesses of our first panel. 

Chairwoman VELA ́ ZQUEZ. Our first witness is Mr. Edsel Brown. 

Mr. Brown is the assistant administrator for the Office of Technology in the Small Business Administration. The Office of Technology promotes the Federal Government’s high technology programs designed to improve the competitive capability of small research and development businesses. 

Welcome, sir. You have 5 minutes. 

STATEMENT OF EDSEL M. BROWN, JR., ESQ. 

Mr. BROWN. Madam Chairwoman, Ranking Member Graves, and 

distinguished members of the committee, thank you for inviting me 

here today to discuss the Small Business Innovation Research program. I am Edsel Brown, assistant director, Office of Technology of 

the Small Business Administration. My office has responsibility for 

innovation policy and programs at SBA and for oversight of the 

SBIR program. 

The SBIR program, established in 1982, was designed to 

strengthen the role of innovative small business concerns and federally funded research and development, and to utilize Federal research and development as a base for technological innovation to 

meet agency needs and to contribute to the growth and strength of 

the nation’s economy. 

This competitive award program attempts to promote innovation 

and commercialization from small companies by restricting a portion of 11 Federal agencies’ external R&D spending to small business. 

A National Academy of Science review of SBIR concluded that 

the program is sound in concept and effective in practice, meets its 

major congressional objectives, and is a driver of innovation and 

commercialization for small business. Since its inception, the program has awarded more than $24 billion to small firms. 

The program is structured in three phases. Phase I awards provide up to $100,000 to evaluate the feasibility and the scientific 

4 

and technical merit of an idea. Phase II awards are funded up to 

$750,000 for 2 years for the further development of ideas initiated 

in Phase I. In Phase III, the awardee firm must either secure private sector investment to bring the innovation to market or obtain 

follow-on contracts with Federal agencies to meet specific agency 

technology needs. 

SBA and the SBIR participating agencies recognize the importance of assessing the SBIR programs’ outcomes and achievements. 

The recent National Academy of Science study provided a first step 

toward assessing the program. The recent National Academy of 

Science study found that SBIR is increasing innovation, encouraging participation by small companies in Federal R&D, providing 

support for small firms own by minorities and women, and resolving research questions for mission agencies in a cost-effective manner. 

The study’s findings highlight the SBIR program’s contribution 

to job growth. SBIR awardees generate approximately 26 more jobs 

after SBIR funding. 

Commercialization: Nearly 50 percent of SBIR Phase II awardees 

bring their innovations to the marketplace. 

And small business reach: From 1992 to 2005, nearly 15,000 

SBIR awards were made to small business. 

An example of a success story is ArmorWorks, LLC. ArmorWorks 

has developed a high-performance, low-cost composite armor system for the U.S. Marine Corps new expeditionary fighting vehicle. 

ArmorWorks developed their composite armor system in response 

to a Navy requirement for a lightweight armor component that 

could be affordably produced and assembled. 

Since 2004, ArmorWorks has won contracts from the Army and 

Marine Corps to provide armor technology. The technology is presently being used to provide extra armor for protective vests worn 

by marines and soldiers serving in Iraq and Afghanistan. 

Again, this story is just one of many. The story clearly illustrates 

the SBIR program at its best, assisting small companies to leverage 

their resources and providing the country with cutting edge technology and innovation. 

Another measure of success by the SBIR program is that it is 

being replicated elsewhere. Countries from across Europe, Asia and 

Latin America are establishing innovation programs based on the 

successful SBIR model. 

Thank you for the opportunity to appear before you today. I will 

be happy to answer any questions you have. 

[The statement of Mr. Brown is included in the appendix at page 

43.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Brown. 

Our next witness is Mr. Michael Caccuitto. Mr. Caccuitto is the 

assistant director of the Office of Small Business Programs, SBIR 

and STTR Program Administration for the Department of Defense. 

The Office of Small Business Programs is responsible for developing policies to guide the Department of Defense efforts to meet 

small business procurement goals and objectives. 

Welcome. 

5 

STATEMENT OF MICHAEL CACCUITTO 

Mr. CACCUITTO. Thank you, Chairwoman Vela ́zquez, Ranking 

Member Graves and members of the Small Business Committee. 

Thank you for this opportunity to testify on the Small Business 

Innovation Research Program. I welcome the opportunity to provide a perspective on how the program is implemented and managed within the Department of Defense. 

Consistent with program guidelines and mandates, the program 

is used principally as a tool for the Department of Defense to seed 

innovation in our industrial base and, in so doing, develop leadingedge technologies with the potential to enable acquisition of lower 

cost or new war fighter capabilities through the marketplace. Now 

more than ever, we need to leverage the responsiveness, efficiency, 

and capacity to innovate of our nation’s small businesses. 

By way of our brief overview of the DOD SBIR program, it is 

comprised of 12 military departments and defense agencies with 

oversight and central administration provided by my office, the Office of Small Business Programs DOD. This model of centralized 

administration and decentralized management and execution allows each participating component to tailor the program to meet 

their unique and diverse mission needs. 

The largest three participants in the program are the Air Force, 

Navy and Army, which together constitute about three quarters of 

our overall DOD budget. 

The DOD program is the largest among the Federal agencies. The budget for fiscal year 2008 was nearly $1.2 billion. This funding supported over 1,800 new Phase I contracts and over 1,000 new 

Phase II contracts. 

Interest in the program is intense among small businesses. For 

the past 7 years, the department has received over 12,000 proposals per year. The competition remains very strong, with only the 

very best proposals getting funded. Historically, about one in six 

proposals in Phase I get funded, and about 50 percent of those 

move on to Phase II. 

The defining characteristics of the applicant firms have remained 

fairly consistent over time. Contracts are awarded in every State 

to firms of all qualifying sizes, and to a great extent to firms that 

are new to the program in DOD. Additionally, about 30 percent are 

awarded to small businesses owned or controlled by socially or economically disadvantaged individuals, women-owned small businesses, veteran-owned small businesses, and small business concerns located in hub zones. 

While it is relatively easy to identify specific SBIR funded firms, 

or particular technologies that have contributed to our missions, it 

is difficult to accurately quantify the broader impact of the SBIR 

program on the economy. 

While in the course of administering the program the department 

tracks the number of employees of participating firms, we do not 

collect data specifically measuring job creation. However, we can 

estimate job creation or sustainment by calculating the employment associated with both the SBIR budget expenditure and reported commercialization, or market or Phase III activity derived 

from extending or logically concluding SBIR funded work. DOD has 

collected this type of data for the past 9 years. 

6 

Using a conservative conversion factor, the DOD SBIR funding 

supported the creation or sustainment of between 9,000 and 16,000 

jobs per year between fiscal years 2001 and 2008. While reported 

commercialization in the form of follow-on sales or investment supported the creation or sustainment of between 10,000 and 37,000 

jobs per year. 

This estimate is believed to be conservative as many firms outgrow the program, are acquired by larger firms, or otherwise do not 

continue to participate, and thus report to us. Additionally, they do 

not account for spillover effects of knowledge generated through the 

program that create or effect other market activity. 

On the other hand, this process of jobs creation sustainment has 

opportunity costs associated with it and uncertainties also, and 

should be therefore considered with some degree of caution and 

care. 

I thank you for the opportunity to testify on the program today, 

its size, its scope, and impact to DOD. I hope my testimony provides you with an understanding of how the program works. I 

would be happy to answer any questions you have. 

[The statement of Mr. Caccuitto is included in the appendix at 

page 47.] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Our next witness is Ms. Jo Anne Goodnight. She is the NIH 

SBIR/STTR program coordinator to the Office of Extramural Research in the National Institutes of Health. The Office of Extramural Research administers grants accounting for 84 percent of the 

NIH’s $29 billion budget, including grants to small research companies. 

Welcome. 

STATEMENT OF JO ANNE GOODNIGHT 

Ms. GOODNIGHT. Thank you. 

Good afternoon, Chairwoman Vela ́zquez, Ranking Member 

Graves and committee members. Thank you for the opportunity to 

discuss the NIH SBIR program and the importance of technology 

in an economic recovery. 

NIH is one of the largest funders of the SBIR program, and the 

largest supporter of biomedical research that focuses on extending 

health life and reducing the burdens of illness and disabilities. 

The SBIR program is poised to fund early stage high-risk and 

high-quality research from which important medical advances can 

be developed. This fiscal year, the total SBIR and STTR set-aside 

is about $672 million. 

NIH SBIR projects are stories of igniting imaginations and spurring new discoveries that can make a difference in people’s lives. 

For example, several companies in New York are focused on detecting, diagnosing, or treating Lyme disease. 

Altea Therapeutics, a Georgia company, developed a needle-less 

infusion patch called the PassPort System for painless and controlled delivery of drugs such as insulin, or vaccines, such as hepatitis B antigen, through the skin. 

Three Rivers Holdings, an Arizona company, focused on assistive 

technology and developed better wheels for wheelchairs. The 

7 

SmartWheel optimizes wheelchair use to root out causes of chronic 

pain on the shoulder, hand or wrist. 

Lickenbrock Technologies, a Missouri company, developed a 3-D 

imager that helps doctors monitor and treat diabetics for eye diseases. 

And a Florida firm, Biopsy Sciences, developed the HydroMARK, 

a novel site marker used in breast biopsy ultrasound procedures. 

Stories such as these come from companies all over the United 

States and underscore the importance of SBIR to our mission. In 

support of the goal to increase commercialization of federally supported R&D, NIH offers programs such as the Fast-Track and 

Competing Renewal award to help awardees negotiate the agonizing period between discovery and commercialization, the so-called 

valley of death. 

In addition, NIH offers commercialization assistance programs 

and facilitates matchmaking through the NIH pipelined partnerships. 

NIH is pleased that a recent study conducted by the National Research Council found that 40 percent of NIH SBIR-funded projects 

are commercialized. Further, using a dynamic monitoring system to 

track continued achievements over time, we have found that about 

50 percent of our awardees have achieved sales. Other factors, such 

as FDA approvals, strategic partnerships and investments, also 

demonstrate program success. 

Economic impacts can also result from an SBIR award. For example, job growth, the theme of today’s hearing, the study found 

that small businesses serve as potential sources of economic vitality and can be an important source of new employment as a result 

of NIH’s SBIR funding. Companies hired an average of 2.7 full-time 

employees and retained 2.2 FTEs that otherwise would not have 

been retained. 

NIH attributes the success and effectiveness of its program to 

several factors. The most significant of these is flexibility in our administration of a program to address the changing nature of biomedical research and accommodate the needs of multiple industries 

and diverse product outcomes. 

Examples include the ability of companies to propose their own 

project ideas, an opportunity to resubmit an unfunded application, 

and the ability to exceed award guidelines in justified cases. Simply 

stated, one size does not fit all. Flexibility is critical at a time when 

science is changing rapidly, becoming more complex and ever-more 

expensive. 

Despite program flexibility and enhancements, we have observed 

some troubling trends. Specifically, the number of SBIR applications declined from fiscal years 2004 through 2008 by nearly 40 

percent. Though the reasons are not fully understood, this disconcerting trend may be related to certain disincentives that are either rendering worthy companies ineligible or driving them away 

for other reasons. 

For some, the award amounts or current phase structure are not 

sufficient incentives for applying. For others, the process is too 

competitive. Others may have lost eligibility or be confused about 

eligibility criteria. 

8 

New companies may find the process daunting or are unsure of 

how to match their skills with our research areas. Appropriate incentives can strengthen the role of small businesses in stimulating 

technological innovation during the economic recovery period. 

In conclusion, I want to reemphasize the NIH commitment to 

supporting small businesses and maintaining the integrity of the 

SBIR program. We look to small businesses to stimulate technological innovation, help us face new challenges, and produce benefits for the public. 

We look forward to working with Congress on ways to reinvigorate the program, incentivize America’s small businesses to participate, and create an environment enabling commercialization of 

health-related products and services that will sustain our national 

economy. 

This concludes my statement. I will be pleased to answer any 

questions you may have. 

[The statement of Ms. Goodnight is included in the appendix at 

page 62.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Goodnight. 

Our next witness is Mr. Larry James. Mr. James is the acting 

SBIR/STTR program manager in the Department of Energy’s Office 

of Science. The Office of Science has managed the SBIR program 

for the Department of Energy since the program was founded in 

1982. 

Welcome. 

STATEMENT OF LARRY JAMES 

Mr. JAMES. Thank you. 

Chairwoman Vela ́zquez, Ranking Member Graves and other 

members of the committee, thank you for inviting me to speak 

today about the Small Business Innovation Research Program at 

the Department of Energy. 

The Office of Science manages the SBIR program for the Department and has done so since the program was formed in 1982. The 

SBIR program is regarded within the Department of Energy like 

any other program, namely, as a vehicle for which the Department 

accomplishes its R&D objectives. The Office of Science’s long history of using merit-based review of grant applications and its thorough understanding of scientific and technical research are key elements in the Department’s program. 

Cooperation throughout the Department in administering the 

SBIR program is a key to the success of the program. The Department issues an annual combined solicitation for the SBIR and 

STTR programs. Proposals are awarded through a rigorous meritbased review process. 

Many of the SBIR awardees have excellent skills in science and 

engineering research but lack experience in product development, 

financing business growth, raising venture capital, and marketing. 

Because commercialization of innovations derived from Federal 

R&D is critical to its mission, the Department provides funding for 

technical assistance, including commercialization. 

The National Research Council’s 2008 assessment of the SBIR 

program at the Department of Energy noted that the DOE SBIR 

program has made significant progress in stimulating technological 

9 

innovation in three important ways: one, by generating patents and 

publications; two, by stimulating a transfer of technology from universities to the market; and three, through indirect paths, for example, through knowledge transferred to other related projects. 

In addition to the potential for commercial success, SBIR-funded 

innovations advance the DOE mission in critical areas. 

The lithium ion battery developed by A123 Systems, for example, 

has an unprecedented combination of safety, power and long life 

compared to previous lithium ion batteries. A123 Systems and 

Chrysler recently announced a strategic partnership whereby A123 

Systems will supply the energy storage systems for Chrysler’s first 

iteration ENVI electric vehicles. 

Due to low administrative overhead within the SBIR program, 

the program does not rigorously track job creation and retention 

data. The estimates I provide here are based on our own budgetrelated data for Phase I and findings of the 2008 National Research Council study that includes a survey of Phase II awardees. 

With almost 5,000 Phase I awards made since 1982, we estimate 

that more than 3,000 FTEs have been directly supported through 

SBIR and STTR Phase I awards since the program began. With 

over 2,000 Phase II awards granted so far, we estimate that about 

12,000 FTEs have been directly supported through SBIR and STTR 

Phase II grants. 

In summary, the SBIR program has enabled successful collaborations between small businesses and the DOE R&D complex that 

have advanced the Department’s missions to improve the Nation’s 

energy, economic, and national security with new insights and innovative technologies while supporting a skilled technical workforce. 

Thank you. 

[The statement of Mr. James is included in the appendix at page 

70.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. James. 

Our next witness is Dr. Kesh Narayanan. He is the division director of the Industrial Innovations and Partnerships within the 

Directorate For Engineering of the National Science Foundation. 

The division of industrial innovations and partnerships is responsible for SBIR and several university-industry partnership programs at the NSF. 

Welcome. 

STATEMENT OF KESH S. NARAYANAN 

Mr. NARAYANAN. Thank you, Chairwoman Vela ́zquez and Ranking Member Graves and members of the committee. Thank you for 

the opportunity to testify on behalf of the National Science Foundation. 

The SBIR program at NSF is aligned with the NSF vision of advancing discovery, innovation and education beyond the frontiers of 

current knowledge, and empowering future generations in science 

and engineering. 

We recognize that over a third of all scientists and engineers 

work at small businesses, and NSF’s SBIR program is well positioned to tap the innovation potential of those small businesses. We 

accomplish this by inviting proposals covering a wide spectrum of 

10 

technologies, including agriculture, biotechnology, medical applications, manufacturing, energy, environment, and nanotechnology. 

Today I would like to share with you our efforts to spur the commercialization of technological innovation in small businesses and 

to help them grow employment and revenues. 

One very successful mechanism is our flagship supplemental program Phase IIB which provides incentives to find investors and 

strategic partners. We also encourage partnerships with other NSF 

centers and programs to leverage discovery research supported by 

NSF in academia. 

We are keen on workforce development through supplements enabling students and teachers to work in the entrepreneurial culture 

of these innovative small businesses. A key distinguishing feature 

of NSF’s SNIR program is that we are focused on assisting small 

businesses in bringing innovative technologies to the marketplace. 

We are distinct among SBIR programs in that we do not procure 

any of these technologies ourselves. 

Let me share with you two stories of how our awards impact society. One is Touch Graphics, which was founded in 1998 to commercialize technologies first demonstrated at the City University of 

New York. It has since grown to employ seven people. The company’s first SBIR grant from NSF in 2000 allowed the development 

of an audio-tactile interactive device known as the Talking Tactile 

Tablet. The product was originally conceived as a tool for teaching 

advanced math to students with limited or no ability to use print 

graphics, and has since expanded to broader applications. 

The tablet was awarded a gold medal in 2006 Industrial Design 

Excellence Awards. Under NSF’s support Touch Graphics also developed a range of technologies for universally accessible displays 

and exhibits at science and technology centers, museums, and 

other venues. In fact, the company is now developing talking touchable models for use at the Smithsonian, including a map of the National Mall. This helps the growing population needing assistive 

technology in gaining broader access. 

My second example comes from Divergence of St. Louis, Missouri, which is working to develop and market a safer method of 

preventing crop damage due to parasitic nematodes attacking plant 

roots. It is estimated that worldwide these parasites cost $80 billion in annual crop damage. This includes common U.S. crops such 

as soybeans. Divergence was able to take advantage of NSF Phase 

IIB funding, leveraging funds from Monsanto. This is long-term research which evaluates potential nematicidal molecules in a hairy 

root system rather than whole plants, saving time, money and 

greenhouse space. Successful molecules are then tested in whole 

plants by Monsanto. 

I should note that NSF supported the original research at Washington University that led to the creation of this company. 

These two firms are only a sample from a very broad portfolio 

of NSF-SBIR awards. With regards to the impact on employment, 

the National Academy Study of NSF-SBIR program and our own 

internal assessments indicate that our Phase II grants result in the 

hiring of 1.5 employees and retaining 2 employees which are critical factors in today’s economy. In addition, we enable research and 

11 

entrepreneurial experience for roughly 100 college students each 

year through supplemental awards. 

In summary, we are proud of the role NSF-funded SBIR companies play in bringing technological innovation to the marketplace, 

growing their firms, employing scientists and engineers, and meeting global competition. 

Madam Chairwoman, this concludes my testimony. I am happy 

to answer any questions that you may have. 

[The statement of Mr. Narayanan is included in the appendix at 

page 81.] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

As we heard from our own testimonies, SBIR has a record for 

funding cutting-edge research and spurring innovation. Companies 

that got their start through SBIR now employ thousands of individuals. 

I would like to hear from any of the members of the panel: How 

can we strengthen the program’s ability to create new jobs? Let’s 

start with Mr. Brown. 

Mr. BROWN. Again, since the program is currently up for reauthorization, and again, we are all familiar with the fine work of 

your committee as well as what has taken place on the Senate side, 

in addition to the evaluation by the National Academy of Science 

study, the current administration is looking at what is on the table 

now. They are considering what alternatives we should consider 

and what will be the best practices as we move forward. 

Again, as I am sure you realize, our administrator has only been 

there for a few short weeks, and we have a lot of work ahead of 

us. We are looking forward to working with her. But again, we 

have not had a chance to address that issue. 

Chairwoman VELA ́ ZQUEZ. Mr. Caccuitto, the program is going to 

be up for reauthorization. Based on your experience, how can we 

strengthen it so we can create more jobs? 

Mr. CACCUITTO. Well, Madam Chairwoman, I think the first 

thing I would focus on is what many of us believe is the strength 

of this program which is its inherent flexibility in how it is implemented among the various agencies that participate. 

Giving the managers of the program at the agencies the greatest 

degree of freedom in the execution of the program in order to 

produce outcomes I think is the foremost thought that comes to 

mind if I was to give some sort of guiding observation relative to 

my experience with the program. 

Chairwoman VELA ́ ZQUEZ. Ms. Goodnight? 

Ms. GOODNIGHT. I just want to thank you for that question, especially given our downturn in applications. 

We appreciate the need to incentivize companies participating in 

this program. As I mentioned, we don’t know all of the reasons. It 

could be as simple as the economic downturn in the biotech sector. 

But we actually believe that there are other issues related to the 

current eligibility rules, certain aspects of the program structure, 

for example. Companies who currently receive a Phase I SBIR cannot move to a Phase II STTR and vice versa. Companies who receive a Phase I STTR, where they may not need the university involvement at such the requisite level, can’t transition to a Phase 

12 

II SBIR. So there is an inability to transition between the two programs. 

The award levels have not been adjusted since 1992. 

Chairwoman VELA ́ ZQUEZ. Yes, I am going to touch on that issue. 

Let me refer this question to you, Ms. Goodnight. In 2005, then 

NIH Director Mr. Zerhouni wrote in a letter to SBA that NIH aims 

to ensure that small business concerns with substantial venture 

capital companies’ support in the biotechnology and public health 

R&D arena are able to receive SBIR awards from NIH. Why does 

a firm’s access to venture capital have such a significant impact on 

the work that NIH does? 

Ms. GOODNIGHT. Because many of the projects that we are funding, particularly in drug discovery, drug development, even developing medical devices, those types of companies, in order to be successful, are going to have to attract additional investments, be it 

through venture capital or raising funding. Even with strategic 

partners, in order for those projects to make it to the marketplace, 

they are not going to be able to go it alone and are going to look 

for those infusions of investment. 

Those same companies have other ideas in the pipeline, and they 

need to do that because many of these projects are going to fail. 

That is the ′′I′′ in the SBIR program. In order for to us to be continually churning that innovation lifecycle engine, the issue we are 

facing now is companies who can take a lead product or drug molecule to a certain stage. They then may have other ideas that 

would be very fitting for SBIR, can’t get the funding there nor can 

they get it elsewhere. 

Chairwoman VELA ́ ZQUEZ. NIH awards multiple Phase II grants 

to small firms in order to help prepare the most promising research 

programs for commercialization. Of course, larger awards means 

fewer awards. Some have suggested that such a pattern leads to 

lower quality research and poorer results. How would you respond 

to that? 

Ms. GOODNIGHT. I would ask you to repeat the second part of the 

issue. Yes, we do provide larger awards when the science justifies 

deviating from the $100,000 or $750,000. 

Chairwoman VELA ́ ZQUEZ. And if we provide larger awards, that 

means there will be fewer awards to give to other applicants. Some 

have suggested that such a pattern leads to lower quality research 

and poorer results. 

Ms. GOODNIGHT. I think that if companies are only submitting 

their mediocre ideas, I can understand where perhaps that concern 

is coming from. There are projects that are in the $150,000 to 

$200,000 range that are just as important as those that are in the 

higher level range. I can’t really answer that concern. 

Chairwoman VELA ́ ZQUEZ. Occasionally a small company may 

have progressed beyond the Phase I feasibility studies of technical 

merit. In these cases, the company’s research may be suitable for 

a Phase II award. Do you believe that under these circumstances, 

the company should be able to bypass Phase I if it can certify that 

it has completed the testing and feasibility studies required under 

Phase I? I will ask for any of the other agencies to respond to that 

question. 

Mr. James? 

13 

Mr. JAMES. Yes. I already had a whole good answer for the last 

question, but I will work on this one, too. 

I think that our program would probably not adopt this idea of 

awarding a Phase II without a Phase I. I just see a lot of difficulty. 

I don’t see how we would work it out. 

Chairwoman VELA ́ ZQUEZ. Okay. 

Do you have any comments, Mr. Narayanan? 

Mr. NARAYANAN. I would agree with Larry James from Energy. 

Because we have an external peer-review mechanism for reviewing 

incoming proposals which is very rigorous, it somewhat relates to 

the first question in the sense that we have an SBIR advisory committee, external advisory committee, which has been looking at our 

program for more than a decade. One of the items they pointed out 

is the whole purpose of our SBIR funds, if all they have done is 

research and they have not commercialized and grown, it does not 

serve the purpose. 

So, in order for a SBIR proposal to come in front, they need to 

have not only a really high research quality but a high commercial 

potential ability. 

So one of the points they recommended, which we included in our 

SBIR evaluation, is in addition to having external technical reviewers, we have included in the last several years external what I will 

call commercial reviewers. The point being that the rigor we give 

would be difficult to evaluate from the outside. 

Chairwoman VELA ́ ZQUEZ. In looking at how can we strengthen 

the SBIR program, we have to answer the question about the valley of death that Ms. Goodnight made reference to. So it is critical 

that we see more research make it from the laboratory to the marketplace. Would a Phase III grant aimed specifically at commercialization help more small firms bridge this gap? 

Ms. Goodnight, Mr. Caccuitto, you made reference to that issue? 

Ms. GOODNIGHT. I think any additional resources, whether they 

are called Phase III or Phase II or Phase IIB, are definitely critical 

in helping these companies bridge that gap because they get to a 

stage, at least for our companies where the Phase I and the Phase 

II is only so much, to put them on this pier and they often have 

not progressed far enough to attract the additional investments 

that they need. 

Chairwoman VELA ́ ZQUEZ. Any other comments? 

Mr. NARAYANAN. I mentioned in my testimony on the Phase IIB 

mechanisms that we are using currently to incentivize existing 

Phase II grants to move towards the Phase III, but one of the observations that we have made is the ability to commercialize. The 

examples I gave, for example, in the agricultural area, sometimes 

it takes almost a decade before it goes through all of the approvals, 

et cetera. And in the IT area, it may be very fast. So even in the 

Phase IIB, we try to do it within the timeline of the two years of 

the Phase II grant, but not all technologies are able to bring this 

third party commitment within the 2 years. So that puts some 

technologies in a bind which may have leveraged this. So I am answering not that we need more Phase III special funding, some 

mechanism that we could use as Phase IIB beyond the 2 years. 

Right now, once it is done, we can’t go back. 

14 

Chairwoman VELA ́ ZQUEZ. Mr. Brown, when Administrator Preston last testified before our committee on SBIR in March 2008, I 

asked him whether the SBA supported increasing the amount of 

SBIR awards. He responded that SBA was supportive of an increase, and that the administration has been working in-house on 

a rule to address that. Is SBA still planning on issuing a rule that 

will increase the size of SBIR grants? Are there any other regulatory changes that you envision in the coming year? 

Mr. BROWN. Madam Chairwoman, in follow-up to your question 

and in follow-up of the testimony of former Administrator Preston, 

yes, SBA has looked at the issue. However, similar to my response 

to the earlier question, the current administration is looking that 

over. And once they have a chance to evaluate that, we will be reporting. 

Chairwoman VELA ́ ZQUEZ. I look forward to discussing it with the 

administrator. 

Now I yield to Ranking Member Graves. 

Mr. GRAVES. Thank you. 

To follow-up on your question to Mr. Brown, the previous administrator always expressed concerns about the role of venture capital 

when it came to small businesses who participate in the SBIR programs. Does the administration have a stance, or are they looking 

at that? 

Mr. BROWN. Again, the administration is looking at all of the reauthorization issues, the size of the awards, the VC issue, et 

cetera. Again, it is a wide berth of information and data. They are 

very challenging issues. So until the current administration has a 

chance to get it under their belt, they are not going to chime in, 

in terms of a position. 

Again, after serving in this office for several years, I am very familiar with the issue. Going back to our advanced notice of proposed rulemaking back in 2004, the series of hearings that we had 

in 2005, so it is a very challenging issue. We understand the complexities of it, and we are evaluating it. 

Mr. GRAVES. This committee is obviously very interested in that 

and how venture capital plays. And I hope you take the statements 

that have been made by the committee and what we have done in 

the past in terms of legislation into account. 

I would also be very interested if you guys have any suggestions 

in improving outreach efforts in the rural areas, which have traditionally been underrepresented in the SBIR program. That obviously is an issue for me because I represent a very rural area. 

There is a lot of opportunities out there, I think. I don’t know if 

you all have looked at that or are just starting to look at it or if 

you have any suggestions. I would certainly be open to any of 

those. 

Mr. BROWN. Again, that is one of many areas that we are looking 

at. Yes, we are looking at it. 

Chairwoman VELA ́ ZQUEZ. And will you have an answer in the 

next 2 or 3 weeks? The program expires in July, you know that, 

right? 

Mr. BROWN. Yes, ma’am. I will take your message back to the administration. 

Mr. GRAVES. Thank you. 

15 

Chairwoman VELA ́ ZQUEZ. Ms. Dahlkemper. 

Mrs. DAHLKEMPER. Thank you, Madam Chairwoman. 

I have a question for Dr. Narayanan. Federal agencies do not 

have a strong record when it comes to funding women and minority 

research firms. You have instituted the research assistant supplements for high school programs to address this. Do you think other 

agencies can emulate your approach, and what do we need to do 

to encourage more women and minorities to apply for these programs? 

Mr. NARAYANAN. Mrs. Dahlkemper, obviously, I can’t speak for 

other agencies. 

But what you are referring to is what we call the RASHSS program, Research Assistance Supplements for High School Students. 

The proposal has to encourage efforts to bring minority students 

into supporting the research award that is going on. 

We have had, even as I speak, limited success, and we need to 

do even more probably outreach and get our community to be energized. So we are excited by what the opportunities or possibilities 

are, and we find it is getting some traction. We need to do more 

of it. 

Can other agencies emulate? I will have to allow them to answer 

that. 

Mrs. DAHLKEMPER. I will open it up to the other agencies here 

and see if you have any ideas on how we can encourage those firms 

that are run by women and minorities to apply for this program. 

Ms. GOODNIGHT. I will just add something for NIH. We also offer 

diversity supplements, and it is my understanding that our SBIR 

and STTR awardees can use those diversity supplements to their 

existing grants. But more importantly, I think it goes to Dr. 

Narayanan’s point about the need for more outreach. 

We have actually committed to doing a number of conferences 

this year that are specifically focused on minority and under-represented groups. I remember back when there was the FAST program, the Federal and State Technology Partnership Program and 

the rural outreach program. States actually were able to hold more 

outreach events and get the agencies there speaking one on one 

with these companies where they may have this intimidation factor 

to apply. But when they actually talk with us, they realized, oh, 

maybe I can go through this. 

Mrs. DAHLKEMPER. What happened to that program? 

Ms. GOODNIGHT. To my knowledge it expired with the last reauthorization, in 2005. 

Mrs. DAHLKEMPER. Dr. Narayanan? 

Mr. NARAYANAN. Thank you. I just want to elaborate a little bit 

if I may. There are several supplemental programs which we document in our written testimony which attempts to link the SBIR 

program with programs at NSF which serves the minority community, which include the community college connections, which include predominantly minority research institutions, and these are 

vehicles to make that connection to make the students and facility 

aware of the entrepreneurial opportunity. 

One of the things our SBIR advisory committee, they formed a 

subcommittee on this very topic because this was of great interest 

to them. One of the recommendations they came forward with 

16 

which was very recently implemented is a mentorship program, 

what they said was it is not only outreach, you need to really help 

them, educate on putting forward high-quality proposals. So what 

we are offering as we speak is to existing grantees of ours who are 

seasoned, if you will, and telling them, you know, can you reach 

out to the new minority, new PIs, principal investigators, take 

them under your wing and help them put forward high-quality proposals. We just recently launched it, and we don’t have any evaluation yet. 

Mrs. DAHLKEMPER. I would be interested in seeing how that program goes forward. 

Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

With the reauthorization, there is a discussion of changing the 

levels, or we need to discuss the levels. What percentage of your 

clients would require or could use additional moneys? Do they come 

back to you for more? What percentage could actually use more, 

just a percentage? 

Mr. BROWN. Well, I would defer to my colleagues here since they 

have the specific data from their specific agencies, and they are 

where the rubber meets the road. 

Mr. CACCUITTO. Congressman, it would be difficult to know what 

that number is because we don’t track that sort of data; specifically, whether a firm requests more resources or not. 

But looking at some data historically, for example the fiscal year 

2000 year group, eventually about 31 percent of those Phase II 

awardees ended up being funded beyond the award guidelines in 

order to continue their technological development and increase 

their chances of success. 

Mr. LUETKEMEYER. Where did they go to get the money? 

Mr. CACCUITTO. Sometimes back to their respective agencies. 

Sometimes to different agencies within the Department. 

Mr. LUETKEMEYER. So you have multiple agencies that may work 

together? 

Mr. CACCUITTO. That happens sometimes, absolutely. 

Mr. LUETKEMEYER. That was my question. I was going to follow 

here with each one of you. 

Ms. GOODNIGHT. For NIH, I, too, am going to base this on fact. Our SBIR median award for Phase I in 2008 was about $151,440; 

and for Phase II, $841,381. 

For STTR, the median award size was $149,711; and for Phase 

II, $907,970. 

So if that is the median, that gets to the percentage or so that 

are in need of those additional dollars. There are statutory guidelines, and so we have been given the ability to exceed where it is 

scientifically justified. 

Mr. LUETKEMEYER. So are you basically going above it pretty regularly? 

Ms. GOODNIGHT. As I mentioned, since they haven’t been adjusted since 1992, we are at those medians. Science is becoming 

more expensive. In order for us to continue to encourage the most 

innovative ideas, rather than those that can just fit under the 

$100,000 or $750,000, we are going beyond. 

17 

Mr. LUETKEMEYER. How do you use your discretionary ability? Is 

it within the statute that allows you to do that, or do you need to 

go back to the SBA and get some waivers? 

Ms. GOODNIGHT. It is a statutory guideline, but we have also spoken and worked very closely with SBA so that they understand the 

areas of research that typically need this additional funding. 

Mr. LUETKEMEYER. So your average award is greater than what 

the level of award normally is, or should, or is statutorily there? 

Very good. 

Mr. James. 

Mr. JAMES. Well, we are a little bit like DOD. We don’t keep 

facts on that, but I can give you some information. We did institute 

what we called a Phase II supplemental a couple of years ago. 

Those are the opportunity for a Phase II awardee to get another 

quarter million dollars in 12 more months on their Phase II award; 

but they have to be invited by the program officer. It has to show 

enough promise. It has to be important to the impact of their mission and so forth. 

The number of those, we fund about 150 Phase IIs. We might get 

10 percent, maybe 15 supplementals. So that is an order of magnitude. 

Mr. LUETKEMEYER. Dr. Narayanan? 

Mr. NARAYANAN. For us, as I mentioned, our mechanism is primarily Phase IIB. Our Phase II awards don’t go up to the limit allowed. We give $500,000 Phase II awards. So we use the supplemental mechanism Phase IIB that I described to go beyond, depending upon the ability for them to bring additional third-party 

funds. 

The need for additional funds is also strongly dependent on technology. Since we are in a wide spectrum of technologies, some 

areas do not necessarily need additional money and they can go 

very fast to the marketplace. In fact, they have to go fast. But some 

of them require a longer time. 

Mr. LUETKEMEYER. One quick question for Mr. Brown. 

How many dollars do you have left in the program at the end of 

the year with regards to the allocation that is allowed to you, or 

do you have to turn down a lot of applicants for these funds, very 

quickly? 

Mr. BROWN. Again, SBA doesn’t give out funding directly. It goes 

directly to the agencies that are here and the other seven that 

aren’t here. 

At the end of the year, speaking of the program as a whole, it 

varies from year to year. Sometimes there is an agency or two that 

may have a few dollars that went unspent. And in the other years, 

that same agency may go over the threshold. So it depends by year. 

Mr. LUETKEMEYER. This past year, up or down? 

Mr. BROWN. It is up. In terms of what went out, it was up. 

Mr. LUETKEMEYER. There was more requested than what you 

had available? 

Mr. BROWN. No, I am talking about the agencies that met the 

threshold as opposed to those that didn’t. If you are talking about 

are there more applications, there are always more applications 

than the amount of money that is available, yes. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

18 

Chairwoman VELA ́ ZQUEZ. Mr. Moore. 

Mr. MOORE. Thank you, Madam Chairwoman. 

You all have firsthand experience with the SBIR program. As 

Congress looks to reauthorize the program, what are some of the 

recommendations that you have for how the program can be improved? 

Some of the reforms that are talked about include increasing the 

SBIR funding level, I am sure nobody wants that; increasing commercialization initiatives to provide a better bridge between research and development and the attraction of private-sector partners; improving the administration of agency SBIR programs; and 

improving outreach to small firms owned and controlled by women, 

veterans and minorities. I would like to hear if you have any response to those or thoughts about those or others? Mr. Brown. 

Mr. BROWN. Once again, the administration is looking at all of 

these issues. It is a mouthful. There are a number of issues. Some 

of them are a lot more complex than others. Some of them are fairly basic, and some are more complex. And not only do they apply 

across the board for the entire program, but if you even look at the 

four other colleagues I have here, they apply differently at the 

agencies that are here. 

But speaking in general, echoing what has been I said by my colleagues, as well as what has been said by the National Academy 

study, the flexibility that the program has needs to be moved forward. 

So as we look at these issues, in terms of eligibility, the VC 

issue, the guidelines, size of awards, whether we should increase 

the 2.5 percent and other issues that we are discussing, that we 

just be mindful of how flexible the program has been. And it seems 

that is the one area that everyone agrees moving forward, that we 

need to try to maintain that flexibility, while at the same time 

maintaining a structure that will maintain the integrity of the program.RPTS MCKENZIEDCMN MAYER 

Mr. MOORE. Do any other members of the panel have thoughts 

about that, any observations? 

Ms. GOODNIGHT. I would echo Mr. Brown’s comment about the 

importance of flexibility in this program. That is really what has 

helped these programs succeed, given our varying missions. 

I think there is one area that is worth just sort of factually stating. That is that currently the set-aside amounts for SBIR and 

STTR must remain separate, and they can’t combine into a total 

set-aside of 2.8 percent. So this gets more to the flexibility issue 

again, of managing the programs effectively to fund the most meritorious SBIR or STTR projects under that set-aside. 

Mr. MOORE. Does anybody else have any thoughts? 

Mr. JAMES. I think the technical assistance aspects of the current 

law have made it pretty difficult for us to provide commercialization assistance as we would like. I think there are some efforts in 

the new authorization to fix that. I think they need to raise the 

amounts and also specify in the Phase II that it is not inside the 

grant; the government has the ability to have a contractor and provide and so forth. 

And you mentioned administrative resources. Certainly we would 

all like to have some more money to help us manage the program 

19 

better. I think a prime example of that here is, my colleague here, 

next to me, keeps talking about his Phase II(b); and I absolutely 

agree, I think it is a flagship. And I wish I could emulate it, but 

I don’t have the resources in my procurement authority to do that. 

It takes quite a bit more procurement specialists to administer that 

kind of a program, and that is— 

Mr. MOORE. Any thoughts, sir? 

Mr. NARAYANAN. I think from—NFS’s point of view, I will echo 

what others have talked about flexibility, because each of us has 

a different mission. And you have seen some of the things like 

Phase II(b), because of the flexibility, we are able to implement. 

One area that we have raised in the past which is we are very 

fortunate at NSF that we have dedicated SBIR program managers 

from the topic generation to the evaluation to awards management 

by technology topics. These are technology managers who will manage the program. And the way we are structured is, I know they 

cannot use the program funds to actually go visit or, you know, 

help the companies in terms of mentoring or making connections. 

So we take reverse attitude of trying to bring all the companies to 

Washington, D.C., spend maybe like 10 minutes per company, 

which is not really all that, you know, the best practice. 

Mr. MOORE. Thank you. And I yield back my 7 seconds. 

Chairwoman VELA ́ ZQUEZ. Mr. Ellsworth. 

Mr. ELLSWORTH. Thank you, Madam Chair. I really don’t have 

a question. I may use Dennis’s 7 seconds. But I would just like to 

reach out to—is it Joe Caccuitto? 

Mr. CACCUITTO. Caccuitto, sir. 

Mr. ELLSWORTH. That was my second guess for the pronunciation. 

Admiral Sestak and I have been appointed to a six- or seven-person committee to look at the military procurement system, and I 

would just like to reach out to you, any suggestions you would have 

to streamline that system, make it more efficient and more cost effective for the taxpayers. You can contact one of our two offices if 

you have input in that. 

So, with that, I don’t have a direct question for small business. 

But I would yield back. 

Chairwoman VELA ́ ZQUEZ. Okay. 

Mr. Thompson. 

Mr. THOMPSON. Thank you, Madam Chairman. 

My district is Pennsylvania Fifth. It is one of the most rural districts that are out there, and SBIR programs just play a tremendous role, mostly, thankfully, to—we have Penn State there, and 

we have a lot of kind of high kind of niche-type innovations that 

come out of that applied research lab. So this is such an important 

program for my district from many perspectives. 

Let’s start with—Mr. Brown, what are your suggestions to improve outreach efforts to rural areas that are traditionally underrepresented in the SBIR program? 

Mr. BROWN. First of all, I think we need to have better collaboration amongst us. I think we are doing a fairly good job now of interacting with one another and sharing best practices in terms of 

what the respective agencies have done. But, again, when there is 

20 

a best practice at one particular agency, we need to highlight that 

and share it with others. 

Another thing that we should consider is doing more outreach 

with the States. Again, we have quarterly SBIR national—excuse 

me—two SBIR national conferences a year to date, and we always 

have a meeting of the State representatives. 

It is always a good networking session. You get key people from 

around the country that have the story from their particular State. 

And again it is the same thing, sharing best practices: What are 

you doing in your State? You may find out that a State has a 

Phase Zero that they have established in their particular State. 

And I am talking about something about the program itself, but 

the same with outreach, you know, what types of things are bringing back the best rewards for you? 

In addition, I also know that there are several States that are 

doing some unique things. I know Maryland, for example, since 

they are one of our neighbors. I don’t know if anybody on the panel 

is from Maryland, but Maryland had a very good program where 

they provided very good direct outreach for minorities in Prince 

George’s County. It was targeted for that particular county to increase the number of technology-oriented minority companies; and 

I understand they had very good results. And, again, that is just 

a snapshot of the types of things that can be done. 

I should also add that with the program managers we have established an outreach subcommittee, and we are exploring different 

ways of doing outreach as well as conducting the national conference. 

Mr. THOMPSON. Okay. Thank you. 

Well, actually, I had the same question which had to do with 

best practices. So I appreciate your getting into that question. 

Ms. Goodnight, in your opinion, what is causing the drop in the 

applicant pool for SBIR grants at NIH? 

Ms. GOODNIGHT. We don’t know all the factors. We believe some 

of them may relate to the fact that some firms are losing their eligibility. Some firms don’t see the incentive opportunities based on 

the current award amounts. Some are not reapplying even though 

they have that opportunity to reapply if they are not selected the 

first time. Some may find that process very daunting, and this gets 

back to the outreach efforts. 

Those are just a few. 

Mr. THOMPSON. Okay. Thank you. 

Ms. GOODNIGHT. I would add one more. I would say with our receipt dates schedule, which are April 5, August 5 and December 5, 

the community is asking a lot of questions about, What about the 

August 5 and December 5 due dates? Because there is a lot of uncertainty about the program at this point. 

Mr. THOMPSON. Okay. 

And some of those first variables you identified as reasons, are 

there any strategies in place to address some of those contributing 

factors? 

Ms. GOODNIGHT. With regard to the eligibility, I think that we 

have spoken enough about that; and given how much we can say 

about it, we certainly believe that the current rules are excluding 

some companies who used to participate and are no longer. With 

21 

regard to not feeling that the process is a daunting one, that gets 

back to the outreach and doing a lot of mentoring and helping 

these companies. 

Mr. THOMPSON. Okay. Thank you. 

One final question in my remaining seconds: Mr. James, can you 

talk a little bit about your outreach to rural areas and initiatives 

to promote that? 

Mr. JAMES. I think we are very active in our regional meetings. 

We go to Johnstown, for example. We go up there and have an outreach. Several program managers from some of the agencies will go 

and we will describe the opportunities for its small businesses, encourage them to contact our program offices, sit down with them 

in one-on-ones, talk to them about what ideas they have, try to find 

a pipeline in the Department that would help them directly involve 

the Department in their development. 

We probably do at least two or so every month, regional activities. Indianapolis. In other words, we do a lot of regional. I know 

we have an annual meeting but we do our best because we think 

this is helping us get more applications. 

Our applications, we certainly can’t claim that that is why our 

applications are going up. Obviously, our applications are going up 

because of the price of oil, for example. So it is something that we 

believe very strongly in. 

Mr. THOMPSON. Okay. Thank you. 

Thank you, Madam Chairman. 

Chairwoman VELA ́ ZQUEZ. Mr. Sestak. 

Mr. SESTAK. Thank you, Madam Chairwoman. 

When we come out of this economy—if the modeling is correct 

and things we have tried to do are correct, by about the middle of 

2010 we will be back at GDP level of 2007. But we have lost a trillion dollars in our economy, and if GDP growth then begins to be 

2.5 percent per year, which is what it averaged between 2001 and 

2007, it will take us 3 years to soak up the $1 trillion that we have 

lost because that is what it shows in the model, about $350 billion 

a year. In short, we won’t even recover the lost capability if we just 

get back to the decade of growth of GDP this year. 

And this year we are going to lose 4.5 percent GDP. Japan is 

going to raise, go up 6.8 percent GDP. 

The point of this is that unless we are able to really energize our 

economy above its typical growth, we aren’t going to make it in any 

real time. So I would like to just talk about venture capitalists for 

a moment and ask a question, if you don’t mind, ma’am. 

Can you talk a bit about what you think the impact could be if, 

in one part of this effort to try to—not just stimulate our economy; 

we have got to get it going about 4, 4.5 percent if we want to be 

back beating China’s kind of competitiveness pretty darn soon. Can 

venture capitalists in the SBIR, can they play an important role in 

that? 

SBIRs aren’t that large. They have got a lot of money. What is 

the impact of this on their portfolio if they do have access to this? 

Because, to me, it just seems like real opportunity here for the 

common good to get us going if we open this up again to the venture capitalist community. 

22 

Ms. GOODNIGHT. The SBIR and STTR programs, as you note, is 

probably not a significant amount of money when you compare it 

to what they are actually going to need to actually bring a product 

to the marketplace. It is the leveraging that it plays a huge role 

in. 

And so these companies who are able to get Phase I and Phase 

II and Phase II(b), or for our agency a competing renewal, and further their progress into some of the clinical studies that are necessary, that is when individuals become more venturesome and will 

start putting additional dollars into those projects. 

And then those same companies may have, as I mentioned, additional ideas in their pipeline for which the SBIR program is perfect 

because they have not taken them through that necessary feasibility study. And then we continue to see the dollars go into those 

projects, and those that show promise get furthered along that 

commercialization pathway to get attraction of additional investments. 

So this is a cyclical process where SBIR has in the past played 

a large role. It has the potential to play a very important role for 

these types of companies that need to raise the financing. 

Mr. SESTAK. So you would be a proponent of it? 

Ms. GOODNIGHT. [witness nods.] 

Mr. SESTAK. If I could ask you, Mr. James. There has been some 

discussion that potentially certain sectors should be focused upon; 

biologics, for example, from start until you get that product out 

there is about $1.2 billion—to your point, ma’am, about the cost of 

it. Should we not just let them in, but should we also try to focus 

this? 

I mean, people have been talking here about retooling our economy in the midst of things in health care or energy or things like 

that. Should there be a way we look at it that way with venture 

capitalists or just leave it as it is? Because sometimes agencies 

kind of say, Come here, SBIR, help me do what my programs already are, rather than maybe being quite innovative and entrepreneurial. 

And, again, I go back to the reason why I think it might be a 

good idea, which is, how do we quickly soak up the $1 trillion that 

we have lost? Growth of 2.5 percent is unacceptable for the next 

5 years. 

Mr. JAMES. As you know, DOE has a loan program, and I have 

been trying to work with our loan program to get them involved in 

looking at small businesses and see what we can do to fast-track 

loans. I don’t know how that is going to happen. But I presume 

your question is, do you think we—do we believe that venture capitalists could play an important role in the SBIR program. Is that 

what you are asking? 

Mr. SESTAK. Should we try to focus it on certain types of sectors? 

Most venture capitalists seems to be concentrated a lot of times in 

California or Massachusetts. That is demographics. 

But should we be looking at sectors such as health or energy? Or 

should we just let them in and let the cards fall as they might? 

Mr. JAMES. My experience has been that the venture capital community is not all that interested in our program. Our Phase II’s are 

limited to $750,000, and that doesn’t seem to— 

23 

Mr. SESTAK. All right. 

How about for Ms. Goodnight? What would you say? 

Ms. GOODNIGHT. It is important. 

Mr. SESTAK. Do you understand why I am asking? 

Ms. GOODNIGHT. I do. I am trying to phrase my question from 

where I sit. 

So venture capitalists, as I understand how they play in this 

game, they put their money into a number of different sectors, 

whether it is biomedical, whether it is energy, whether it is IT; it 

is where the hot technologies are, and it is where they see that 

they are going to get a return on their investment. 

Now that may take a number of years. And, certainly, from the 

SBIR companies participating in the program to get them to that 

stage, it is 5, 7, 10 years down the road. On the IT side, however, 

it is a very short turnaround. So it is a number of sectors where 

they are investing in. 

Mr. SESTAK. So you would let it open. Thank you. 

And do you feel the same way about angels? 

Ms. GOODNIGHT. I believe angels are doing the same thing. They 

are investing in technology areas that are broader than biomedical 

research. 

Mr. SESTAK. Okay. Thank you. 

Chairwoman VELA ́ ZQUEZ. Mr. Thompson, I understand you have 

another question. 

Mr. THOMPSON. Well, actually, thank you, Madam Chairman. 

More of a request and to kind of follow up to my first question 

I had for you, Mr. Brown, I was wondering—you had made reference to the good collaborative work that is going on. What I 

would like to request is, if we could get a copy of the report for the 

subcommittee on outreach, I think, as was described; I think that 

would be real helpful for myself and for the whole panel if we could 

get a copy of that, please. 

Mr. BROWN. Will do. 

Mr. THOMPSON. Thank you. 

Chairwoman VELA ́ ZQUEZ. Okay. Any other member that wishes 

to make any questions? 

If not, Mr. Narayanan, I have one last question and I would like 

to ask that question to you. 

NSF is widely recognized for its effective administration of the 

SBIR program. And how has NSF been able to administer its program so effectively without a separate line item for program management? 

Mr. NARAYANAN. Madam Chairwoman, I think to start off, you 

fully recognize that SBIR programs started in NSF even before 

1982 by Mr. Roland Tibbetts. So NSF had a certain degree of ownership to the program from day zero, if you will. So that culture 

has resulted in support from NSF management to staff our program with dedicated program officers who are experts in the specific technology areas. 

As I mentioned earlier, we are very fortunate that we have program managers distributed by—in the broad technology areas from 

materials manufacturing to biotech to information communication 

technologies. So we have got—I would say the dedicated program 

officers makes a difference. And those dedicated program offices, 

24 

every one of them I can say has either—every one of them has an 

industrial background. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

For the record, can each agency tell the committee if they will 

benefit from a separate budget for SBIR administration and program management. 

Mr. James. 

Mr. JAMES. I think I mentioned earlier that we certainly could. 

Site visits, a whole list of things. 

Chairwoman VELA ́ ZQUEZ. Ms. Goodnight. 

Ms. GOODNIGHT. NIH also would support additional funding for 

administrative costs for managing these programs. 

Chairwoman VELA ́ ZQUEZ. Mr. Caccuitto? 

Mr. CACCUITTO. We funded a RAND study last year, looking at 

assessing the baseline overhead cost to the program. They came up 

with an estimate of at least 6 percent for us. So that indicates to 

me we have a very resource-intensive program, and therefore, I 

would say more resources are better than less. 

Chairwoman VELA ́ ZQUEZ. Okay. And I guess that you don’t have 

an answer since we have a new administrator and it will take 2 

or 3 more weeks. 

Mr. BROWN. Yes. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I want to thank all the witnesses for being here today and for 

your insightful testimony. Thank you very much. 

And I will ask the second panel to please take your seats. 

Okay. Well, welcome, lady and gentlemen. 

Our first witness on the second panel is Mr. Joshua Green. Mr. 

Green is general partner with MDV-Mohr Davidow Ventures. He 

joined MVD’s investing team with a focus on cleantech companies. 

Throughout his career, Mr. Green has guided entrepreneurs and 

helped to build successful companies, including Yahoo and Target 

Therapeutics. He is here to testify on behalf of the National Venture Capital Association. NVCA is comprised of more than 400 

firms. 

Welcome, Mr. Green. 

STATEMENT OF MR. JOSHUA GREEN, GENERAL PARTNER, 

MDV-MOHR DAVIDOW VENTURES, MENLO PARK, CALIFORNIA, ON BEHALF OF THE NATIONAL VENTURE CAPITAL 

ASSOCIATION 

Mr. GREEN. Thank you very much. 

Chairwoman Vela ́zquez and members of the committee, my name 

is Josh Green. I am a partner at Mohr Davidow Ventures, a venture capital firm in Menlo Park, California. I am also a member 

of the National Venture Capital Association, and my views today 

represent the 460 members of NVCA, which account for over 90 

percent of all the venture capital under management in the United 

States. 

Like all VC firms, Mohr Davidow invests in entrepreneurs that 

are creating innovative small businesses that will hopefully grow 

into large, successful enterprises. Our firm has been in business for 

more than 25 years, taking a hands-on approach to building startVerDate Aug 31 2005 11:07 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\48595.TXT DARIEN
25 

up companies in the high tech, life sciences and alternative energy 

sectors. As a cleantech investor myself, I am focused on creating 

businesses that will reduce our country’s dependence on foreign oil 

and help preserve our environment while creating domestic jobs 

and more revenue. 

In 2008, venture capitalists invested more than $4.6 billion into 

clean technology businesses alone, that are innovating in a wide 

variety of areas. Many of these companies are founded on discoveries made through basic government-funded research. I am here 

today on behalf of those current and future companies. As an industry, we strongly support the reauthorization of the SBIR grant 

program, and we hope that the past inequalities are corrected so 

that all small businesses can compete for these critical funding 

grants. 

To begin, I would like to address several misconceptions that we 

believe exist and are used to argue against VC companies’ participation in the SBIR program. The first is that venture-backed companies do not need SBIR programs because they are strong fullyfunded entities. This is patently false. Venture-backed companies 

are quintessential small businesses; many are pre-revenue and 

most have fewer than 10 employees. Like all small businesses they 

operate on very tight budgets and are extremely fragile. 

Venture-backed companies must consistently meet agreed-upon 

milestones to receive continued funding. Venture firms do not have 

unlimited funds and have contractually finite pools of resources to 

devote to any particular company. 

The second misconception is about VC funding itself. Venture 

capital moneys are used to build businesses, not to perform research. However, a company that receives venture funding may 

have other innovations in the pipeline that are worth pursuing, 

and it is for these new projects that the company would apply for 

an SBIR grant. 

Businesses must continue to innovate, and a current SBA interpretation forces these companies into an unfortunate dilemma for 

worthy new projects. This scenario has resulted in small businesses 

at best delaying important discovery projects and at worst abandoning this important work altogether. 

Another misconception is that venture capital firms are equivalent to large corporations, and therefore the companies that they 

fund should be excluded from consideration for SBIR grants. We 

agree that large corporate-owned businesses should not be allowed 

to participate in the small business program. But venture capital 

firms and their portfolio companies are not large corporations; they 

are private partnerships existing to finance the growth of an 

emerging growth company. 

At a time when the national debt is high and government resources are stretched thin, we believe the Federal Government 

should look toward the private sector for solutions to our Nation’s 

health care, energy and national security challenges. Instead, the 

current SBA eligibility rules throw costly, time-consuming and unnecessary hurdles in the path of government agencies seeking to 

collaborate with venture capital-backed companies. We believe this 

is a huge loss for the country. 

26 

Throughout the history of the SBIR program, majority ventureowned small businesses have applied for and received SBIR funding. This historical precedent strongly suggests that their participation has caused no harm to the program or to other small businesses. In fact, the recent National Academy of Sciences study 

found no evidence that other small businesses have ever been 

crowded out by the participation of venture-backed businesses. 

In recent years, as cleantech investing is growing, the venture 

capital industry has been working more closely with the Federal 

Government and key agencies like the Department of Energy and 

EPA. Those agencies have been touting the SBIR program as a 

mechanism to advance their research dollars with promising venture-backed companies. The industry is poised to work with them. 

The policies enacted by this Congress, this administration, will either help or hinder that effort. 

The SBIR program is a wonderful mechanism for government 

and private sector to come together and do what desperately needs 

to be done to support a strong economic recovery, help these small 

companies grow and innovate. But the SBA’s past policies have seriously negated the positive impact of venture-backed small businesses. 

Venture dollars and SBIR dollars play complementary roles in financing innovation. One is rarely, if ever, a substitute for the 

other. 

We urge Congress to reauthorize the program with provisions 

that ensure venture-backed companies have a fair chance to thrive 

under the SBIR program alongside their non venture-backed counterparts. Doing so, we believe, will only strengthen the future success of the program. 

I would like to thank the committee for the opportunity to share 

with you today the challenges our small venture-backed businesses 

have faced under the past restrictions and why these grants are 

critical to the ongoing vitality of innovation and job creation in the 

United States. 

I am happy to answer any questions you might have. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Green. 

[The statement of Mr. Green is included in the appendix at page 

93.] 

Chairwoman VELA ́ ZQUEZ. And our next witness is Ms. Rachel 

King. She is the founder and chief executive officer of 

GlycoMimetics Inc. GlycoMimetics has a specialized technology, 

which is producing proprietary drug candidates with focus on inflammation, cancer and infectious diseases. Ms. King is here to testify on behalf of the Biotechnology Industry Organization, the 

world’s largest biotechnology organization with over 1,200 members. 

Welcome. 

STATEMENT OF MS. RACHEL KING, CHIEF EXECUTIVE OFFICER, GLYCOMIMETICS, INC., ON BEHALF OF BIOTECHNOLOGY INDUSTRY ORGANIZATION 

Ms. KING. Chairwoman Vela ́zquez and members of the committee, thank you very much for giving me the opportunity to testify today. And I want to thank you for holding this hearing and 

27 

thank you for your support of the SBIR program and for your focus 

on this issue, because this is a critical issue to the biotechnology 

industry. And I think it is really very, very important that we understand the significance of the program, how important it is, particularly in this economic climate; and I do have some specific ideas 

about how we can improve it, to enhance the program even further. 

As Congresswomen Vela ́zquez mentioned, I am here to testify on 

behalf of the Biotechnology Industry Organization. I serve on the 

board of directors there, and I also chair the emerging companies 

section, which is where we particularly represent companies like 

ours—young, early-stage companies that are focused on cuttingedge research, but which are smaller, optimistically viewed as 

emerging because we look forward to the opportunities that we believe our new technologies will provide. 

Our company has a lead program focused on developing a drug 

for sickle cell disease. We have 20 employees, and we do not qualify 

for SBIR funding. And that is really, I think, a clear example of 

why the eligibility program or why the eligibility requirements 

need to be changed. 

Even more striking, though, when we opened the doors of our 

company, when we had four employees, we did not qualify as a 

small business for SBIR purposes. And that is because of our venture capital backing. So that is a critical issue, as far as I am concerned, that we really do need to address. This is particularly important in this economic climate, when everybody knows that there 

have been a lot of challenges to many sectors in the economy. 

In the case of biotechnology, we have seen significant reductions 

in the venture capital investments that are going to biotech companies. We see increasing numbers of public companies that are running out of cash, and we see a real push to focus our resources on 

our latest-stage, most-advanced programs, which really increases 

the importance of having SBIR funding for those earlier-stage programs which, as Dr. Goodnight mentioned, are the high-quality, 

high-risk, early-stage scientific areas where we really could productively focus on some additional resources. 

We have three specific recommendations that we would like to 

make in terms of improving the SBIR program. The first is to really address the eligibility requirements with respect to venture capital ownership. Again giving you a specific example from our case, 

because we happen to have more than 50 percent venture ownership, it means that we do not qualify. And I think that that is a 

significant reason why we saw such a significant drop in applications, the 40 percent drop that Dr. Goodnight referenced in terms 

of SBIR applications to the NIH. My opinion is that that is significantly influenced by the fact that venture-backed companies cannot 

apply for those grants to the extent that the VCs own more than 

50 percent of our companies. 

Remember, we are developing therapeutics, and particular companies developing therapeutics require lots of investment for long 

periods of time, so we can’t do that without the backing of venture 

capitalists. By definition, we will have a lot of venture capital investment. And we can really count on the SBIR program if it is 

available to help us to fund the earlier-stage programs where we 

28 

are doing even more cutting-edge research. So it is critical for us 

to be able to access that. 

A second recommendation gets to this question of affiliated employees. And again to give you a specific example from our company, we have, as I said, 20 employees. One of my large venture 

investors invests in all kinds of other types of businesses that have 

nothing to do with biotechnology. So if they invest in a software 

company, for example, that has 100 employees, those employees 

should not be counted in my eligibility for an SBIR grant. They 

have nothing to do with what I am doing. I have got nothing to do 

with what they are doing, and I really think we need to focus on 

employees of the company itself. So the affiliation rules really need 

to be clarified. 

And the third recommendation, which again supports some of the 

comments from the earlier panel is that we really do believe that 

agencies need to have flexibility in terms of how they implement 

their programs. Different scientific approaches are going to require 

different amounts of funding, different timing for the types of funding that would be helpful to their ventures. And so I really think 

as a third point to give more flexibility to the agencies in how they 

administer their own particular aspects of the program, I think, 

would be very productive. 

So as I said at the outset, I think this is a critical program. You 

are able to support early-stage important innovations. You are able 

to do it in small businesses and significantly effect employment 

generation in this country. I think it is a win-win for all parties, 

and I really thank you for your interest and for your support of this 

important program. 

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. King. 

[The statement of Ms. King is included in the appendix at page 

104.] 

Chairman VELA ́ ZQUEZ. Our next witness is Mr. John Stocker. He 

is the senior vice president of Federal Solutions for Lynntech, located in College Station, Texas. Lynntech is a research and technology development company with a 20-year history of successful 

innovation. Lynntech is a member of the Small Business Technology Council. 

Welcome. 

STATEMENT OF MR. JOHN STOCKER, SENIOR VICE PRESIDENT, FEDERAL SOLUTIONS, LYNNTECH, INC., COLLEGE 

STATION, TEXAS 

Mr. STOCKER. Thank you, Madam Chairwoman. And I appreciate 

the opportunity to appear before the committee this afternoon and 

would ask that my full statement be entered into the record. 

Chairwoman VELA ́ ZQUEZ. Without objection. 

Mr. STOCKER. Madam Chairwoman Vela ́zquez and members of 

the committee, it is with great pleasure that I appear before you 

today to offer Lynntech’s views on the need to reform the Small 

Business Innovation Research program. And I should add that I 

am speaking on behalf of Lynntech and not on behalf of the Small 

Business Technology Council. 

It is true that we are headquartered in College Station, Texas, 

but some of us have small farms in Spencer County, Indiana. And 

29 

we are the largest SBIR contractor in the State and one of the largest in the country. So it is fair to say that this program is an important one, and it has been beneficial in the past to the company. 

The company was founded back in 1989. Our primary objective 

is to intensify our efforts to transition technologies into the marketplace. Our technologies are concentrated in the areas of the electrochemical synthesis, energy storage and conversion, chemical biological defense systems and environmental remediation. About twothirds of our contracts are with the Department of Defense, although we have performed under contracts to a number of the 

agencies that have SBIR dollars; as a result, our interest in this 

debate regarding the reform legislation is quite high, as our efforts 

to transition technologies will be driven by the framework of future 

reforms. 

In sum and with all due respect to the participants in the past, 

we think that the debate regarding last year’s bill as passed by the 

House is focused on the wrong set of issues. We believe that ownership of SBIR companies by venture capital firms should not be 

guiding our discussions regarding reform of the program. We 

should be looking forward to all possible resources, both public and 

private, to advance technologies into the future. The only ground 

rule should be that this is a small business program and should be 

closed to activities of large corporations. 

We believe that the need really is on technology transition. There 

are a number of great technologies out there that have never made 

it to the marketplace, in part because the technology readiness 

level of those technologies is insufficient to attract the attention of 

prime contractors or even acquisition managers in the Defense Department because they are not sufficiently advanced. And without 

having a clearly defined program to move from Phase II into the 

marketplace, it will be difficult for those transition efforts to be 

successful. 

Currently, companies like Lynntech have to rely on a fairly ad 

hoc system to approach acquisition managers and to identify technologies that could be of interest and necessary to downstream 

weapons systems that they are procuring for the needs of our 

warfighters. And as a result, we find that it is very, very difficult 

to move beyond Phase II into a Phase III-type effort in large part 

because there is no Phase III funding available to the acquisition 

managers to take advantage of our technologies. 

For example, we have developed a technology for producing hydrogen peroxide in the field. Hydrogen peroxide is an important 

element in cleaning spaces and equipment that have been hit with 

biological agents. Right now the ability of the military to deliver 

hydrogen peroxide is through air transport and then having to 

store the hydrogen peroxide on site in the deployment areas. 

Hydrogen peroxide is an extremely volatile material and is dangerous to transport in cargo planes. As a result, we have a system 

of relying only on air, water and electricity that would provide 

them the hydrogen peroxide as needed in the field and would reduce the transportation costs and the logistics burden of providing 

that hydrogen peroxide in its current form. 

However, because of the long process which defense budgeting 

goes through, it is difficult for our customer—and we have a cusVerDate Aug 31 2005 11:07 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\48595.TXT DARIEN
30 

tomer clearly identified in the Defense Department—to reach out 

and take advantage of our technology because we have landed in 

the middle of the budget cycle. And so for them to look at us, they 

would need to put us into line for funding 2 years from now, in 

which case, we would go 2 years without developing the technology 

any further, which means 2 more years in which our warfighters 

don’t have access to our system. 

So we believe that the most serious question is our ability to continue the development beyond the early-stage capabilities that you 

will get at the end of Phase II. 

We have a number of issues that we have discussed with various 

players in this arena. We think that there is a possibility of having 

a compromise to go forward, arranging across the board with 

whether we are talking about Phase I’s, Phase II’s, whether we are 

talking about the level of allocation to SBIR programs, the size of 

contract awards, et cetera. 

We believe a compromise is not only feasible, but is possible 

within this environment; and we are here and pledge our assistance to you and the committee, Madam Chairwoman, to seek those 

promise compromises. Thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Stocker. 

[The statement of Mr. Stocker is included in the appendix at 

page 109.]Chairwoman VELA ́ ZQUEZ. -- and our next—I will recognize Mr. Luetkemeyer for the purpose of introducing our next witness. 

Mr. LUETKEMEYER. Thank you, Madam Chairman. 

Mr. Rosellini is the President and CEO of MicroTransponder in 

Dallas, Texas. MicroTransponder is a privately held medical device 

company. The company is developing a wireless neurostimulation 

system for the treatment of chronic pain. 

Mr. Rosellini is here to testify on behalf of the Advanced Medical 

Technology Association. Advanced Med advocates for a legal regulatory and economic environment that advances global health care. 

Welcome, Mr. Rosellini. 

STATEMENT OF MR. WILL ROSELLINI, CHIEF EXECUTIVE OFFICER, MICROTRANSPONDER INC., DALLAS, TEXAS, ON BEHALF OF ADVANCED MEDICAL TECHNOLOGY ASSOCIATION 

Mr. ROSELLINI. Good afternoon. I am honored to appear before 

the Small Business Committee to share an example of how the 

SBIR program has made it possible for MicroTransponder to not 

only develop treatments for chronic pain, but a variety of other 

neurological disorders, including tinnitus, traumatic brain injury, 

post-traumatic stress, autism and motor disorders. Taken together, 

these conditions affect over 50 million people in the U.S. and represent an economic burden of over $100 billion annually. 

Utilizing SBIR funding, in the last 2 weeks Drs. Michael Kilgard 

and Navzer Engineer have recently collected preliminary data that 

suggest our devices may soon be able to reverse the cause of a neurological disease. As a neuroscientist, every time I read that I get 

goosebumps. This disease severely affects 12 million people in the 

United States, 500,000 veterans, 93,000 of whom have recently returned from Iraq. 

31 

This disease is tinnitus. Tinnitus is a debilitating constant ringing sensation that originates in the brain itself. Tinnitus is caused 

by hearing loss often from trauma related to explosion. The VA 

alone has projected to spend $1 billion annually in 2011 in tinnitus 

disability compensation. We expect to move our promising treatment for tinnitus into clinical testing in humans within 2 years. 

We treat tinnitus by implanting a small device near a nerve in 

the side of the neck. The device emits small electric pulses near the 

nerve, which sends a signal up to the brain to produce chemicals 

that allow the brain to reprogram itself. When a tinnitus patient 

receives this device therapy while listening to a series of auditory 

tones, the brain is able to reprogram and eliminate the painful 

ringing sensation of tinnitus. 

If successful in humans, our technology will be the first time a 

neurological disease has been reversed using medical devices. It is 

a very exciting time for us at MicroTransponder and it would not 

have been possible without the SBIR program. 

MicroTransponder Incorporated was formed to commercialize Dr. 

Lawrence Cauller’s innovations related to a wireless medical device 

which interfaces with the nervous system. As a former Army 

medic, Dr. Cauller had been inspired to use the wireless devices to 

communicate with robotic prosthetic limbs to replace lost limbs in 

combat. 

Now, I have an M.B.A., J.D., Masters of Neuroscience, Masters 

of Accounting, Masters of Computational Biology, Masters of Regulatory Science and an entrepreneurial track record in the medical 

field. But apparently raising funds for robotic prosthetic limbs and 

devices that can reprogram the brain is not a straight step to profitability. Instead we turned to the SBIR program. 

In 2007 we received our first Phase I grant award from Joseph 

Pancrazio, Program Director of the extramural research program at 

NIH/NINDS to convert this into a clinical product. This award allowed us to obtain important data to show that we could power our 

devices wirelessly. With this feasibility established, we began a 

search for ways to use this technology to deliver electricity to peripheral nerves to treat chronic pain. 

At roughly the same time, a colleague and friend of Dr. Cauller, 

Dr. Kilgard, told me about his idea to use the device to stimulate 

nerves to selectively alter brain function in a predictable and potentially therapeutic manner. MicroTransponder and UTD submitted a research plan to the SBIR program; and with these funds, 

Dr. Kilgard’s team has turned this idea into a potentially groundbreaking new therapy for tinnitus. We expect this therapy to be 

able to be used for motor deficit, post-traumatic stress, autism and 

a variety of other neurological conditions. 

These SBIR grants serve a number of important roles in getting 

high-risk, high-reward companies off the ground. First, they enable 

the companies to inexpensively test the feasibility of their technology. Second, when a company is able to show feasibility and garner additional funds, this independent scientific validation of the 

company’s approach opens the door for venture capital and other 

private fundraising. 

After receiving our first funds from the NIH, we were able to obtain additional funds from the Texas Emerging Technology Fund. 

32 

This fund awarded us a $1.4 million award. The combined funding 

has allowed us to obtain ′′proof of principle′′ laboratory data and finalize our prototype device. We are now preparing to enter clinical 

trials at the end of the year for treating chronic pain as well as 

possibly reversing tinnitus. 

This progress could never have been made without SBIR funding. Without the SBIR program, many high-risk, high-reward technologies would not have been developed and the public would have 

fewer new treatments for serious illnesses. 

Chairwoman Vela ́zquez and Ranking Member Graves, I thank 

you for your leadership and the reauthorization of the program and 

giving the SBA a very hard time about their lack of commitment 

in this area. I appreciate the opportunity to share with you how the 

SBIR program has been instrumental in allowing MicroTransponder to move forward in developing treatments and cures for a 

number of unmet needs. 

I would be happy to answer any questions you may have. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

[The statement of Mr. Rosellini is included in the appendix at 

page 115.] 

Chairwoman VELA ́ ZQUEZ. If I may, Mr. Rosellini, I would like to 

address my first question to you. 

We have heard how long it takes in terms of money and time required to bring a new medical device to market. And most medical 

device firms need investors or partners to commercialize promising 

research, so in the current economic climate it is extremely difficult 

to raise capital to transition research from the lab to the marketplace. 

What effect is this lack of venture capital having on the rate of 

innovation in the medical device industry? 

Mr. ROSELLINI. My comment on that would be that venture capitalists are now espousing focus, focus, focus. So our device, if it 

works, is going to be worth hundreds of millions of dollars to a 

strategic partner. So the venture capitalists would approach our 

company and say, the only thing you should be allowed to develop 

and work on and spend money on is a chronic pain indication, 

meaning only use your device for that. 

What we have done is we have mobilized other neuroscientists 

to use our device in different ways. And the way we motivate them 

is to say, Hey, go after these SBIR funds so we can come up with 

further innovation in a nondilutive way for other disease indications. And we have done that with four different disease indications. If we didn’t have that opportunity, all of these innovations 

would have stopped. 

Chairwoman VELA ́ ZQUEZ. But once you develop your device and 

you use the money from Phase I and you want to take that device 

to commercialize it in the market, you will need resources to go to 

that other phase. 

What type of resources do you think will be available for you to 

be able to move that product from the lab into the marketplace? 

Mr. ROSELLINI. Our approach for the first indication, we think 

that we could raise venture capital. So for chronic pain, we think 

we could raise that money. However, we will not be able to develop 

any of the other indications without SBIR funds, meaning it would 

33 

stop. So we need both to be able to develop the program that we 

would like to develop. 

Chairwoman VELA ́ ZQUEZ. Okay. 

Mr. Stocker, much of the debate on modernizing the SBIR program has revolved around the issue of venture capital and the role 

that it should play in the program. So what are your thoughts on 

this? And is it the most important issue that we here in Congress 

should be focused on, or are there other pressing matters that we 

need to consider? 

Mr. STOCKER. Madam Chairwoman, I think the most pressing 

issue is this whole issue of transitioning these technologies into the 

marketplace. 

So my colleague here on the right is describing some of the difficulties they will have in attempting to move their device into the 

marketplace. There is no clear path. Perhaps there is not only a 

single path, but there is no clear path within the agencies right 

now that would allow you to develop your device to the point where 

you could effectively present it to a private investment group of any 

kind and have them wholeheartedly enter into an arrangement 

with you to go ahead and develop that device to go into the marketplace. 

So there needs to continue to be a combination of public and private resources to make that happen. 

The affiliation rules that were devised for SBA programs in the 

past—and I don’t need to tell you this—was largely directed at ensuring the set-aside programs were not invaded by large corporations. Those affiliation rules don’t necessarily apply in an era when 

there are multiple resources out there and you cannot equate a private financial institution of any kind with a major corporation that 

is looking to get access to set-aside programs. 

So we need to be able to rely on both. But our major problem is 

that there is not enough money in the base contracts. Those award 

levels need to be increased. The allocations need to be increased so 

that we can underwrite more programs with larger contract 

awards. 

And then, finally, there need to be specific appropriations for 

Phase III development that would then allow you to move beyond 

the technology readiness levels that we are able to achieve at the 

end of Phase II. The most common complaint I hear from the technical monitors that we deal with in the Defense Department is that 

we do not have access to enough money to really develop our ideas. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Ms. King, in the biotech industry, investors often tie their funds 

to the development of the company’s lead therapy. As a result, companies can be blocked from spending the funds from investors on 

other applications. 

If small, venture-backed biotechnology companies could participate in SBIR, would more research be conducted on these secondary applications? 

Ms. KING. Yes, absolutely. And I have a specific example from 

our company. 

We have a program, very early stage. We think it is very exciting 

where we have some—a family of compounds that we think could 

be useful in a number of infectious diseases, including HIV and tuVerDate Aug 31 2005 11:07 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\48595.TXT DARIEN
34 

berculosis. We cannot work on that program because we have to 

focus on our lead program. 

Now, we think our lead program is exciting and has a lot of 

value too. And it is on the basis of that program that we have attracted the venture capital investment. But I would love to be able 

to support my earlier-stage programs with SBIR funding. 

And, again—I mean, to open that program to allow companies 

like ours to apply of course doesn’t guarantee that we are going to 

get the awards. But I would be happy to let our science be judged 

on the basis of the quality of our data. Let the NIH decide. Open 

up the competition. Let them choose on the basis of the quality of 

the science and on that basis make the awards, not on the basis 

of who owns what percent of our company. 

But you are exactly correct. If we were able to access that funding source, then we and other companies would be able to invest 

in more early-stage, very promising research than we can now. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Green, I think you were here when the first panel was testifying. 

Mr. GREEN. Yes. 

Chairwoman VELA ́ ZQUEZ. And it caught my attention, the statement made by the rep from DOE, when he said that the VC industry is not interested in the DOE-type of industries. 

Mr. GREEN. It caught my attention as well. The truth is, it is just 

the opposite of that. 

In fact, I participated in a panel in front of approximately 200 

entrepreneurs yesterday morning in Silicon Valley where the entire 

focus and the highest amount of interest was about how to get in 

front of DOE in order to access dollars. 

Now, this was beyond the SBIR program, but the interest levels in participation, whether it be in the $2 billion that is looking at 

developing advanced battery technology or its SBIR programs is 

truly palpable right now. It is, in fact, as least as great as coming 

up to Sand Hill Road in Menlo Park and seeking venture capital 

dollars. 

Chairwoman VELA ́ ZQUEZ. Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. I don’t 

have a whole lot of questions. I just want to make a couple of comments. 

I appreciate all of you being here today from the standpoint that 

you represent the entrepreneurial spirit and what makes this country great, in my mind. I am excited to see you there, and I see the 

excitement and patience in your voice as you testify for each individual company and the things that you do. The only question I 

have is for Mr. Green. 

You made a comment that—it was kind of interesting and intriguing. You said venture capital is used to build and not do research. I think really—if that is accurate, it really tells us where 

the SBIR program can be really instrumental in helping get that 

first step taken so that down the road the venture capitalists can 

come in and be able to have funds accessible to folks to continue 

to build their business. I appreciate that point of view. 

And if you would like to elaborate on it a little bit more, I would 

appreciate it. 

35 

Mr. GREEN. To drill in on it, there is the conception that venture 

capitalists will take a significant number of their projects directly 

out of university labs. In the case of my firm, about 40 percent of 

what we fund comes directly out of university labs. However, there 

is a significant portion that needs just a little more of a nudge to 

get to that commercialization stage. They are not quite there, not 

quite ready. 

The examples that are in Phase I and Phase II grants is that 

necessary element to push it over the edge. It is very much akin 

to what is called ′′seed funding′′ in Silicon Valley, where you will 

put in a small amount of money in order to get it to that commercialization stage. So this performs an absolutely vital function to 

get it to a point where we can then build a business around that 

technology. 

Mr. LUETKEMEYER. Very good. 

With that, I will yield back, Madam Chairman. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Thompson. 

Mr. THOMPSON. Thank you, Madam Chairwoman. 

Mr. Green, picking back up on venture capital and the SBIR 

process, obviously a lot of discussion there. My question is, are 

there other ways to structure venture capital investment contracts 

as to not include ownership and, you know, like a greater share of 

profits or a sliding scale of ownership that corresponds to success? 

Mr. GREEN. Yeah. It is an excellent question. 

The way the venture capital industry has developed over the last 

40 to 50 years has been, we raise our money from university endowments and private foundations under charter documents that 

require us to take an equity interest in those enterprises. That is 

the way the model, that is the way the industry has developed. 

So, for example, even a slight change like taking an interest in 

a limited partnership agreement, as opposed to a regular seed corporation, is something that we can’t do, in general because we are 

constricted to taking that equity interest and, hopefully, appreciation of that interest as the enterprise grows. 

So it would take a whole sea change in the entire VC industry 

in order to do it in some other manner. 

Mr. THOMPSON. Do you see any movements in that direction at 

all? 

Mr. GREEN. I have not. 

Mr. THOMPSON. Okay. Thank you. 

Mr. Stocker, in your testimony you mentioned that we should 

focus on ensuring that large corporations should not directly benefit from a small business program. I certainly agree with that. 

How would you suggest that we ensure that? 

Mr. STOCKER. In terms of the rules that have been discussed in 

the past and some subsequent discussion that we have had with 

committee staff with regard to how you would go forward, we think 

there should be a percentage limitation on ownership of any SBIR 

company by a large corporation. And we think that that is workable going forward. 

Mr. THOMPSON. Many of the recommendations that you advocated were included in last year’s reauthorization bill. You know, 

what would you like to not see in this year’s bill? 

36 

Mr. STOCKER. Well, I am not sure that the allocation increase 

that we are advocating was included in last year’s bill for a lot of 

different reasons. We would like to see that issue addressed at 

least by the time the bill comes out of conference. 

I think, secondly, we don’t think there should be a complete 

elimination of Phase I. Phase I is a very useful exercise in testing 

whether concepts can be made to work. This notion of having privately financed Phase I’s and then being asked to enter into Phase 

II competition, I think that is an issue that we can look at, but I 

don’t want to see us abandon Phase I. 

Phase I is—the incidence of failure is very high in Phase I. But 

that is a useful result because it tells you you shouldn’t be wasting 

your time in that particular approach. So we think in that context 

the Phase I’s need to be kept in the program. 

We would like to see more policy direction in regard to the commercialization exercise. I think the agencies need to be reporting 

back to this committee on a more frequent basis in regard to how 

successful the transition efforts are. I would like to see the SBA’s 

data, for example, the 50 percent of Phase II’s do become commercialized. That was a little surprising to me. 

I would like to see the Defense Department—as good as we have 

seen progress made within DOD—and, for this, I would single out 

the Navy; the Navy does a fantastic job in looking at technology 

transition from an early stage. The other services probably need to 

do some work in catching up to where the Navy is currently. So 

in that context, I think that would be important for the committee 

to include in any bill as a policy directive in regard to this whole 

technology transition effort. 

We would also like to see an appropriation dedicated to covering 

management costs. You have heard the representatives of the first 

panel address that. I have actually been in meetings with people 

saying they didn’t want to review SBIR proposals because they 

didn’t have time to do it. And people saw it as a burden on their 

already busy day of having to undertake an evaluation of SBIR 

proposals. 

So I think if there are additional management resources provided 

to the agencies, I think that would help them do a better job of 

being able to articulate topics that make sense to the acquisition 

people, to be able to do the proper valuation of the proposals and 

to manage the program as it goes through execution. 

Mr. THOMPSON. Very good. Thank you. 

Thank you, Madam Chairwoman. 

Chairwoman VELA ́ ZQUEZ. An argument often used against venture capital involvement in the SBIR program is that small firms 

will lose day-to-day operational control of their companies. Can you 

discuss this subject and tell the committee what impact a venture 

capital investment would have on the management of a company, 

on Lynntech for example, Mr. Stocker. 

Mr. STOCKER. One of the realities of private capital coming into 

a company is that those people who are writing the checks usually 

like to know what the company is doing. So I would not be surprised to see VC firms require a board representation and some 

oversight of day-to-day responsibilities. 

37 

However, I would also be surprised that VC firms would want to 

run a company on a day-to-day investment because obviously, one 

of the reasons they are investing in that firm is they are impressed 

by the quality of the management team, and they are impressed by 

the quality of the work that firm is doing. 

To be concerned about venture capital or investment bank participation in any firm, be it small or large, I think ignores the role 

of private capital in American enterprise. So I am not too concerned about this whole question of operational control. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

For the last 18 years, the SBIR set-aside has not been increased 

from 2.5 percent. Could each one of you explain your views on 

whether or not this level should be raised, and if so, how high it 

should be increased? 

Mr. Stocker, you already answered my question. 

Mr. Green? 

Mr. GREEN. As I think about it, I do equate the SBIR program 

in very many aspects to what a seed financing would be like. And 

there is a bit of a cottage industry that exists in Silicon Valley 

around seed financings. 

I look at that number as being somewhere around $1.2 million 

to $1.5 million in today’s world to get yourself in general to a point 

where you can figure out whether or not you have a 

commercializable business to fund around. 

Chairwoman VELA ́ ZQUEZ. Ms. King? 

Ms. KING. I would agree with that as a general rule. I think we 

are in an environment where we want to adopt economic stimulatory policies for the economy, broadly speaking. 

We need to focus the investments that we make in areas where 

we are going to increase employment and support innovation. So I 

think, to the extent you are looking at trade offs between let’s say 

increasing an SBA program versus other policies that you are looking at in your role as Members of Congress, I think that this is one 

where you will get a lot of benefit for the investment dollars that 

you put into it. 

I don’t have a specific number in mind in terms of how much I 

would like to see the program increased. But I would say that I believe added dollars in this program will have an economic stimulatory effect. I believe they will increase employment, and I also believe they will support innovation which, over time, will lead to 

other further economic benefits. 

I wanted to comment briefly on the previous question about operational control of VCs. We need to look at the venture capital investors as partners in the enterprise with management. I think, in 

a good situation, that is how companies work. 

I agree with what was said earlier that most venture capital investors in my experience don’t want to run the company on a dayto-day basis. What they would really like to do is make the investment, get the regular reports of the progress, and eventually reap 

the benefit of the risk that they took in making the investment. 

They can provide counsel. In our case, I believe our investors 

give us a lot of benefit by virtue of their experience and their connections and help. I think we need to view them as partners in the 

enterprise, not somehow as adversaries in the enterprise. 

38 

Mr. ROSELLINI. My comment on that is, 30 years ago, you called 

yourself a chemist or a biologist or a botanist. Today, our scientists 

like to be referred to as neuroengineers. So the amount of 

translational research and expertise that goes into a product today 

is much different than it was 30 years. 

The billions of dollars of research for consumer products like TVs 

and cell phones, we are taking these really interesting parts and 

putting them into the body. Well, that is a very difficult team to 

keep together. You have an engineer, an electrical engineer, software engineer and biologist, neuroscientist. So, for us, a movement 

away from the traditional one scientist working in a laboratory by 

himself into a way for a business to organize 5 to 10 different people that have to be experts to translate this medicine, so I think 

it should be increased. 

Chairwoman VELA ́ ZQUEZ. Any other questions? 

Thank you again. 

We will continue to assess and to work and to discuss with the 

SBIR community the best way to proceed regarding the reauthorization and modernization of the SBIR program. So thank you 

again for participating in this hearing. 

I ask unanimous consent that members may have 5 days to submit a statement and supporting materials for the record. Without 

objection, so ordered. 

This hearing is now adjourned. 

[Whereupon, at 3:13 p.m., the committee was adjourned.] 

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