Dear SBIR Gateway Insider,

I apologize for the protracted information drought. I’d love to tell you about my great vacation, but unfortunately my silence was due to illness, and it was my surgeon who became a true "insider". Suffice to say that I’m quite recovered and ready to go. Thanks to the many of you who inquired and offered good thoughts.

We have a very serious issue to lead off with, and it’s taking place now, as we speak.

In this issue:

• Proposed Legislation to Obliterate the Small Business Size Standard
• Tibbetts Awardees Announced
• SBTC’s SBIR in Rapid Transitions 2007.2 Conference to Follow the Tibbetts
• Long Awaited NRC Study: Capitalizing on Science, Technology, and Innovation
• Legislation Introduced to Increase SBIR and STTR Funding
• SBIR Program Attracts Attention Abroad

Proposed Legislation to Obliterate the Small Business Size Standard of "Independently Owned and Operated." Large VC Lobbyists Seek Exemption for all Small Business Contracting.

This time we’re not talking only SBIR, but all of SBA’s Small Business Size Standards are under siege by big VC special interest groups spending big bucks to influence Congress to change the SBA’s definition of "independently owned and operated." This is part of the new bill H.R.3567.

The proposed change obfuscates the definition of "independently owned and operated" to the point where a small business that is majority owned and controlled by a VC (regardless of the VC size) would qualify as a small business entity, not just for SBIR, but all government contracting!

This action is so outrageous that it finds two polar opposites and arch enemies in agreement. Lloyd Chapman (president of the American Small Business League), who has hurled severe criticisms and insults at SBA, and Steven Preston (SBA Administrator), both strongly oppose this language change.

According to a recent article by Keith Girard on Allbusiness.com , (see www.allbusiness.com/government/4923343-1.html) "…the National Venture Capital Association, a powerful lobbying force with strong ties to Democrats on Capitol Hill, is spearheading efforts to amend the law."

Democrats you say? We hear that Speaker Nancy Pelosi’s husband works in the world of VCs, and her constituency encompasses a fertile high tech VC environment. Current House Small Business Committee chair, Nydia M. Velázquez (D-NY) is, and has been very supportive of the VCs in the SBIR, but the ranking member Steve Chabot (R-OH), is not. Last year, House SB chair Donald Manzullo (R-IL) was not buying the VC’s story and didn’t allow it to gain traction in his committee.

However, this is not a partisan issue. H.R.3567 was sponsored by Jason Altmire (D-PA) with Nydia Velázquez (D-NY) and Sam Graves (R-MO). Graves has quite a track record with the BIO and NVCA in VC uber alas land. It was Senator Kit Bond (R-MO) and Graves that got the VC issue started via the Biotech Industry Organization (BIO) in 2004 with their ill-fated bills S.2384 and H.R.4149. It was reported that due to resistance to these bills, Bond tried to hammer it through in the in the end-of-year "must pass" omnibus bill of the108^th Congress. The Bond and Graves team tried again in the 109^th with S. 1263 and H. R.2943 (see www.zyn.com/sbir/insider/sb-insider07-26-06.htm) and BIO fanned the flames by publicizing distortions about VCs being excluded from SBIR, and suggesting that cures to major diseases were being delayed or missed.

Knowing fact from fiction, a situation the VC lobbyists were not accustom to, Senator John Kerry (D-MA), chair of the Senate Committee on Small Business and Entrepreneurship held hearings and asked tough, penetrating questions of the VCs which ultimately made them uncomfortable, and demonstrated that Kerry understood the situation. Although Kerry was being respectful of the VC position, he would not allow them blatantly distort the facts. He was looking for a fair and reasonable solution. BIO and NVCA seemed to want all or nothing, because they felt they could get "all."

Am I being paranoid about this new legislation? Consider this. The new bill H. R. 3567 was just introduced Tuesday, Sept 18, and is being rushed to mark up by the full House Committee on Small Business, Thursday, Sept 20. How’s that for speed? Perhaps some feel they don’t need to hear from you. This bill, entitled "Small Business Investment Expansion Act of 2007" contains the VC language at the end, Title V, Sec. 501 "Determining Whether Business Concern Is Independently Owned And Operated" You can view the entire bill at Thomas.loc.gov or quickly reference section 501 at www.zyn.com/sbir/insider/hr3567_sec501.pdf

VC participation in SBIR is important, and not all VCs sign on to the heavy handed tactics being deployed by the NVCA. Nevertheless, Congress hears more from these big VC lobbyists than they do from you. If you think this issue is important, let your Senators and Representative know. Also let the Senate and House small business committees know. The House SB committee can be reached at 202-225-4038 and the Senate SBE Committee at 202-224-5175.

If you want to take part in a collective voice through a small business organization, check out the Small Business Technology Council (SBTC) at www.sbtc.org

The 2007 Tibbetts Awards have been announced and the presentation ceremonies will be held at the Westin Washington, DC City Center, on Wednesday October 10. This years program will include an awards presentation ceremony, a luncheon, an SBIR reauthorization rally and a Capitol Hill reception. Details are available from the web site at www.tibbettsawards.org

The SBTC is hosting their SBIR in Rapid Transitions 2007.2 conference the day following the Tibbetts Awards on Thursday, Oct 11, 2007, at the Westin Washington, DC City Center (same facility as the Tibbetts).

This conference is building on their previous one in March and includes new and updated information, perspectives and words from some powerful speakers. Congressman John Murtha, (responsible for adding $100m for SBIR to the house DoD appropriations bill) is slated to deliver the morning keynote and Deputy Undersecretary of Defense James I. Finley will give the luncheon keynote.

Registration for this conference also includes the SBIR reauthorization rally on Wednesday October 10 (at the same hotel) and the Capitol Hill reception with the Tibbetts Awardees that evening. Details are on their website at www.sbtcevents.org/rt072

For the last several years the National Research Counsel (NRC) of the National Academies, under the research leadership of Dr. Charles Wessner, has been performing an in depth study on the SBIR program. Although eleven agencies participate in the SBIR program, the NRC focused on the five largest programs, comprised of the DoD, NIH, NASA, DOE and NSF.

Many SBIR professionals, as well as agency program managers and hill staffers have been anxiously awaiting the results of this in-depth study. It is expected that this study will have a significant impact on programmatic changes that will become part of the SBIR reauthorization. The following are excerpts from the NRC’s prepublication release:

The SBIR program is making significant progress in achieving the Congressional goals for the program. The SBIR program is sound in concept and effective in practice.

Specifically, the program is:

• Stimulating technological innovation
• Using small businesses to meet federal research and development needs
• Fostering and encouraging participation by women and minorities in technological innovation, though more monitoring and assessment is needed
• Increasing private sector commercialization of innovations derived from federal research and development:

Summary of Key Recommendations

The report was undertaken in enough depth to conclude not simply that the programmatic goals were generally being met, but that a series of very specific program reforms could be adopted to significantly improve performance. In other words, the report benchmarks performance measures that will enable program managers and policymakers to implement needed changes.

The report recommends that Congress and the agencies:

• Retain program flexibility
• Preserve the basic program structure
• Conduct regular internal and external evaluations
• Increase management funding for SBIR
• Improve program processes, especially cycle time
• Improve participation by women and minorities
• Consider the creation of agency Advisory Boards
• Encourage program innovation
• Readjust award sizes

Summary: An Effective Program

In summary, the program is proving effective in meeting Congressional objectives. It is increasing innovation, encouraging participation by small companies in federal R&D, providing support for small firms owned by minorities and women, and resolving research questions for mission agencies. Should the Congress wish to provide additional funds for the program in support of these objectives, with the programmatic changes recommended above, those funds could be employed effectively by the nation’s SBIR program.

The 393 page pre-release of this study has created great pockets of discussion. Most of the comments I received were directly related to the "perch" from which the report was viewed. I hope to share some of those comments with you in a future Insider. I’m interested in your comments as well.

The pre-release is available in PDF format from the National Academies Press web site at www.nap.edu/catalog/11989.html To download the free file you must go to their site, click on the blue "Sign in" button (under the PDF window on the left), and provide your email address and zip code. You will then be able to download the PDF to your computer (about 2.3mb in size). A hard copy of the report will be available for purchase on their web site for $81.90.

Senator Evan Bayh (D-IN) has sponsored a bill, S.1932, to raise the current 2.5% SBIR funding to 5%, and the STTR from 0.3% to 0.6%, both over a five year span. Bayh was joined by cosponsors John Kerry (D-MA), Olympia Snowe (R-ME), Mary Landrieu (D-LA) and David Vitter (R-LA).

In a recent article on venture capital, FinFacts Ireland (Ireland’s business and financial portal) reported that China overtook the United Kingdom as the second biggest destination for venture capital in 2007.

Finfacts reports: ..stimulating the demand for venture capital in the UK (i.e. growing the pool of investable companies) should be considered as important as directly stimulating the supply of capital. Emulating the highly successful SBIR scheme in the US or the Israeli Incubator Programme would go some way towards achieving this.

There is much more news to report on and I will do my best to get you more timely updates. Thank you for your interest and please keep your comments and questions coming.

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