This change would drive the Small Business out of Small Business Innovative Research, and likely replace it with litigation. The SBIR process is competitive enough without this change.

The subject of my email to you regards current efforts underway to redefine eligibility rules for companies participating in SBIR and STTR programs. As I understand it, Venture Capital firms are lobbying congress and/or the SBA to allow companies owned by VCs ("owned" being greater than 51% ownership) to participate in the SBIR/STTR programs, which provides seed capital for companies completing research of value to Federal agencies.

I would like to express my opposition to this change, for the very simple reason that the SBIR program is intended to provide much needed funding to small companies that have no other access to development capital. You know us at Positive Systems, and development capital has *always* been one of our key challenges. From my perspective, this is a rather simple issue. If a company has developed to the point of securing VC funding, their product development efforts must be relatively well developed. If not, there must be another reason the VC feels the company is a "good bet", but in any case the VC has accepted the role of providing that development funding.

Among other issues, if a company is owned up to 49% by a VC, it *can* still participate in the SBIR program. If the VC has taken a position of *majority* ownership in a company, they should be willing to remain committed to providing the development funding needed.

Please leave the SBIR program as is, to focus on providing funding to those companies that truly NEED it.

Prior to November 2002 we submitted and were funded four NIH SBIR grants (three Phase I and one Phase 2). These grants were critical in creating the jobs to grow the company from 5 to more than 20, and to attract VC financing in November 2002 which added another 20 positions to the company�s payroll. By virtue of this SBIR support, several product candidates advanced into clinical trails or were partnered with major pharmaceutical companies. Thus, not only has it been accepted practice for the NIH SBIR program to support the growth of emerging biotechnology companies, but it has helped to accomplish the mission of the NIH and create new jobs as well.

Our operating plan for 2003�2005 calls for continued SBIR/STTR funding by NIH to support high-risk, early stage research and development work. Under the current, restrictive eligibility interpretation as put forth by NIH and SBA our company is disallowed from receiving new SBIR/STTR awards. The absence of external funding will have a deleterious effect on our research and product portfolio as even a well- funded company like ours is unable to shoulder these R&D costs.

The question is moot because the government has for two decades showed that it cares little for the kinds of companies and ideas that VCs would invest in anyway. The federal bureaucrats are the small company�s best protection against any invasion by real money with real profit motives. The agencies endlessly choose minor impact projects that have no appeal to VC money.

IF the government had half a venture brain it would fund projects that are too technically risky for VCs but would be attractive if the risk were reduced with a small government investment. That way SBIR would soon start producing the economic gains that the politicians pretend they want but let the bureaus divert the SBIR money away from. SDIO/BMDO (now MDA) did that for more than a decade) although it has recently fallen into the same contract R&D hole the other agencies have been in since the beginning.

Let some competition be introduced into SBIR for economically attractive new ideas. The government agencies could also stand a boot in the most helpful place to get them to take more risks with SBIR and reach farther in their project selection. Playing safe is a sure recipe for mediocrity.

Basically, we were arguing - as the data showed clearly - that, aside from obvious over-stated suggestions of what terrible things would happen if the rules are not changed, the numbers involved are trivial. Of the over 2500 firms which have been in receipt of SBIR funding in NIH since 1998 (what we call currently active) only about 80 have been in receipt of Venture Capital.

We can document how much money that involves but do not know how the deal was structured. However, based on the numbers we do have and a fair amount of experience in the field, we can estimate (fairly accurately) that the proposed rule change perhaps involves 15-20 firms - hardly enough to warrant a major shift in how SBIR is managed.

Setting aside the current arguments concerning how important VC support of capital hungry biotech firms is in this period of limited access to other equity - which actually IS an important issue - the main proponent's position for changing size standards is now being supported by a chart based on a telephone survey of ten leading VC biotech support firms. Remarkable for its inadequacy!

We took that chart, which identifies those ten firms interviewed, and cross checked the data provided against our own current (to yesterday) fully complete and entirely accurate SBIR-STTR databases. As you know, this data includes, among lots of other business factors (issued patent - US and international; publicly traded; M&A activity; strategic alliances etc etc), the major percentage of VC activity in the SBIR community. For some of the early years, that data may be a little sketchy but for the passed five- six years it is about as accurate and complete as it can be.

To be on the safe side - in case we had missed a firm here and there - we also visited the websites of each of the ten firms to cross-check their portfolio listings against our data, and finally, we even ran the names of all their investment firms through CRISP just in case these firms had NIH funds other than SBIR or STTR.

The results are not at all supportive of the BIO position in that the data they are using is seriously inaccurate.

It doesn't help their case that many of the firms which they do list correctly as having been awardees, are long since outgrown the program and have not received SBIR-STTR funding in many years.

The numbers simply do not support the VC-BIO-NVCA position and they must be prevented from achieving this change.

Far more telling than any position they are taking specific to this issue is the fact that if we do allow this to happen, it will be the thin end of what I would suggest is a very thick wedge. What other exception do we allow next?

As one of the original SBIR players - with a very few others, we worked back in the late seventies and early eighties for passage of the original SBIR enabling legislation; I was right there for the 1986 reauthorization and the 1992 and was on the front line of almost every battle involving SBIR ever since, including the most recent DOD debacle earlier this year - we have stood steadfast throughout for a number of things

Stick to the rules and you will have my complete support; bend the rules to your own advantage - whatever that is - and I will fight .... and we haven't lost a battle for this program yet!