NRC An Assessment of SBIR Program - National Defense Industrial ...

An Assessment of the Small Business Innovation Research Program
http://www.nap.edu/catalog/11989.html
PREPUBLICATION COPY
This contribution is noteworthy because government awards address segments of the
innovation cycle that private investors often do not fund because they find it too risky or too
small.
“It does seem that early-stage help by the government in developing platform technologies
and financing scientific discoveries is directed exactly at the areas where institutional venture
capitalists cannot and will not go.” 70
UNEDITED PROOFS
Copyright © National Academy of Sciences. All rights reserved.
31
David Morgenthaler,
Founding Partner of Morgenthaler Ventures
SBIR is the main source of federal funding for early-stage technology development in the
United States. Based on Banscomb and Auerswald’s lower estimate of the distribution of
funding sources, SBIR provides over 20 percent of funding for early-stage development
from all sources and over 85 percent of federal financial support for direct early-stage
development. Moreover, SBIR has no public or private substitutes. (See Box D.) Funding
opportunities under SBIR can thus provide early stage finance for technologies that are not
readily supported by venture capitalists, angel investors, or other sources of early-stage
funding in the United States.
Box D: The Federal Role in Comparative Perspective
“Small technology firms with 500 or less employees now employ 54.8 percent of all scientists
and engineers in US industrial R&D. However, these nearly 6 million scientists and engineers
are able to obtain only 4.3 percent of extramural government R&D dollars. In contrast, large
and medium firms with more than 500 employees combined employ only 45.2 percent but
receive 50.3 percent of government R&D funds. Universities receive 35.3 percent, nonprofit
research institutions 10.0 percent, and states and foreign countries 1.0 percent. Of the
4.3 2 percent that goes to small firms 2.5 percent is from SBIR and the related Small
Business Technology Transfer (STTR) program. Together they receive less than 10 percent
of the funding that large firms receive.” 71
Roland Tibbetts, “SBIR Renewal and U.S. Economic Security” 72
1.3 SBIR: STRENGTHS AND LIMITATIONS
SBIR leverages small business innovation to address government and societal needs in such
areas as health, security, environment, and energy. The strength of the SBIR concept lies in
aligning the interests of each of the participants in the program with the goals of the
program. SBIR proposals are industry-initiated based on broad solicitations posted by
federal agencies. This bottom-up design promotes a positive interest by small businesses in
the outcome of their research. Similarly, the federal agencies can each use the program to
70 David Morgenthaler, “Assessing Technical Risk,” in L. M. Branscomb, Kenneth P. Morse, and Michael J.
Roberts, eds., Managing Technical Risk: Understanding Private Sector Decision Making on Early Stage Technology-Based
Project, 2000, p. 107-108.
71 National Science Foundation, “Science and Engineering Indicators 2006.” Figures are for 2005
72 http://www.nsba.biz/docs/tibbetts_sbir_reauthorization.pdf