With the recent election now being in the history books, the topography of the political landscape is coming into focus. The VC/BIO special interest groups have been preparing to re-launch their efforts to change the SBIR eligibility guidelines through Senate bill S.2384 and House bill H.R.4149 without allowing public comment, including that of small businesses. An excellent detailed description of this issue is available in a new white paper written November 10, 2004 by Dr. Chris Busch (see Busch White Paper).

The VC/BIO lobbyists hope to get legislation passed quickly and quietly during the Congressional "Lame Duck" session scheduled to convene on Tuesday, November 16, 2004. It is anticipated that VC/BIO may try to get the language of these bills included in the SBA reauthorization bill which has yet to be passed. The SBA is currently running on a continuing resolution (CR).

By acting in this last minute "quiet" manner, the VC/BIO special interest groups hope to avoid hearings, studies, and public comments, all of which could threaten their special interests. The lobbyists know that there is opposition to their special interests, especially from the smaller and rural states that feel their small businesses could not compete a large entity masquerading as a small business vying for SBIR dollars.

Since our last report, the VC/BIO special interests have sent a "trail balloon" to their politicos which is termed as a "compromise" to SBA's ownership and control eligibility issue. Informed sources tell us that the compromise would allow venture capital owned and controlled firms an "exemption" from SBA size standards which would provide eligibility for their companies to apply for SBIR grants with the National Institutes of Health (NIH) on a two-year trial basis.

The NIH is currently the agency of interest to these groups because of the group's focus on biotech and the large dollar amounts of NIH's SBIR awards. The NIH often extends their SBIR awards to millions of dollars. This is a legal practice on the part of NIH who was instrumental in creating an exception to the SBIR phase II funding limit of $750,000. In the current SBA SBIR Policy Directive of September 24, 2002, section 7 (h)(2) states:

An awarding agency may exceed those award values where appropriate for a particular project. After award of any funding agreement exceeding $100,000 for Phase I or $750,000 for Phase II, the agency's SBIR representative must provide SBA with written justification of such action. This justification must be submitted with the agency's Annual Report data. Similar justification is required for any modification to a funding agreement that would bring the cumulative dollar amount to a total in excess of the amounts set forth above.

In a recent conversation with two VC executives (asking that their names be withheld), they clarified why biotech and NIH were their main interest. "Biotech is where the serious money and opportunities are. NIH awards are large and plentiful" If you score with the DoD, they have too much control of your profits (selling to the government) and your market is most likely limited, but if you score in Biotech research, you're wide open as to the market, profits and earnings."

We are not suggesting that the NIH is doing anything improper. In fact we know that the NIH SBIR representatives work very hard to do the best job they can to satisfy the needs of the agency, the science and the small businesses. NIH suggests that the higher SBIR award amounts are necessary under certain circumstances in order to perform more substantive research in the very complex issues of interest to NIH.

These vastly higher dollar amounts are the areas of interest to the large and/or institutional VCs who desire to buy majority interest and control in a small business and still qualify for those large SBIR awards.

Opponents to this special interest legislative change are asking their Senators and Congressional Representatives to not approve these changes until Congress has had an opportunity to review this legislation in Committee and Floor discussion.

What You Can Do
Call your Congressional Representatives, especially those on the House Small Business Committee and the Senate Committee on Small Business and Entrepreneurship immediately! Tell them you do not want companies owned and controlled by big business competing against you or other small businesses in the SBIR program. Stress that changing the SBIR legislation warrants hearings and public comment in order to determine the best interests of the small businesses this program was designed to serve.

Other Sources
The Small Business Technology Coalition (SBTC) is a strong advocate for small businesses and the SBIR program. They are a non-partisan, nonprofit industry association of companies dedicated to promoting the creation and growth of research-intensive, technology-based U.S. small business.

Contact Information
A list of House and Senate contacts are available at www.zyn.com/sbir/articles/biocon-vc2a.htm