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Dr. Ronald Cooper

Dr. Ronald Cooper. Small Business Administration USA. Small Business Innovation Research Program (SBIR) Small Business Technology Transfer Program (STTR) Member, National Academy of Sciences ’ , U.S. Innovation Policy Committee Instructor, American University, USA

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Dr. Ronald Cooper

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  1. Dr. Ronald Cooper Small Business Administration USA

  2. Small Business Innovation Research Program (SBIR) • Small Business Technology Transfer Program (STTR) • Member, National Academy of Sciences’, U.S. Innovation Policy Committee • Instructor, American University, USA • Science, Technology, and Economic Policy Board, National Academy of Sciences • Publications: Technological Innovation, Economic Policy, and Economic Development

  3. Financing Small Firm Innovation in the United States The Small Business Innovation Research (SBIR) program and related programs Ronald S. Cooper, Ph.DOffice of TechnologyU.S. Small Business Administration

  4. Public innovation programs—U.S. • “U.S. experience” -- national, state, local -- models, practices, lessons • Targeting small firms and individual entrepreneurs -- ¼th R&D $, 55% innovations -- incentive: possibility of high returns -- risk is manageable, failure is an option

  5. National policy shift • 1950s, 60s -- Federal role was to support basic research in Federal labs and large businesses • 1970s, 80s -- Policy shift towards: - commercialization of federal R&D - government-industry partnerships - greater role for small business • “Stevenson-Wydler Act” of 1980 • “University and Small Business Patent Procedure Act” of 1980 (Bayh-Dole Act) • “Small Business Innovation Development Act” of 1982 established the SBIR program

  6. Economic context • Concern over competitiveness of US industry—productivity • Disconnect between invention and innovation • only 5% inventions in federal labs licensed • VC industry • no good “angel” investor networks • funding gap “valley of death” for early- stage innovation

  7. SBIR addresses innovation finance gap Dimensions of the GapPublic program 1. Information Certification effect, outreach 2. Short Timeframe  Awards/grants

  8. US Venture Capital Investmentsby Stage, 2002 Expansion Late Stage Early Stage Start Up Source: MoneyTree Survey—PricewaterhouseCoopers, Thompson Venture Economics, NVCA.

  9. SBIR addresses innovation finance gap Dimensions of the GapPublic program 1. Information Certification effect, outreach 2. Short Timeframe  Awards/grants 3. Size of financing  Small grants (< $1m)

  10. SBIR addresses innovation finance gap Dimensions of the GapPublic program 1. Information Certification effect, outreach 2. Short Timeframe  Awards/grants 3. Size of financing  Small grants (< $1m) 4. Few (fad) technologies  Wide range of technologies 5. Geographic specialization  Broad geographic coverage

  11. Small Business Innovation Research (SBIR) Program Objectives of SBIR program: • Stimulate technological innovation • Use small business to meet federal R&D needs • Increase private-sector commercialization of innovations derived from federal R&D

  12. SBIR program today • National program providing $2 billion each year to small businesses for innovation • Over 1,500 firms receive over 5,000 awards each year • Enables US small businesses to engage in federally-funded R&D—with potential for commercialization • Enables/encourages federal agencies to utilize the innovation advantages of small firms

  13. SBIR’s 3-Phase Structure PHASE I • Feasibility of idea • $100,000 (1 year) PHASE II • Full R&D, prototype • $750,000 (2 years) • Commercialization plan “PHASE III” • Commercialization stage • Use of non-SBIR funds (private capital or federal follow-on)

  14. SBIR eligibility requirements • Small business located in the U.S. • 500 or fewer employees • Organized for-profit U.S. business • At least 51% ownedand controlled by U.S. citizens (individuals) • Principal Investigator’s primary employmentmust be with the small business • Research partners are allowed/encouraged (up to 1/3 of Phase I, up to 1/2 of Phase II)

  15. Source of funds for SBIR: • Federal agencies with “extramural” research budgets of over $100 million per year must reserve a percentage for small business through the SBIR program. Amount of R&D budget to be set-aside for SBIR: 1982-861987-921993-941995-961997-present 0.2+% 1.25% 1.5% 2.0% 2.5%

  16. U.S. federally-funded R&DTotal: $85 billion in 2002 $62B

  17. Program Structure • Each participating Federal agency administers its own SBIR program • Solicitations (with technology topic areas) • Proposal review & selection (scientific merit / commercial) • Highly competitive: 16% of proposals accepted - Phase I ½ of Phase I projects win Phase IIs • SBA has oversight and outreach responsibilities - Policy directive - Monitoring - National conferences - Evaluation - Outreach programs - Reporting to Congress and activities

  18. TOTAL ~ $2 B FY 2004 SBIR participating agencies (FY2002)$ millions • SBA (oversight) • Defense (DOD) 600 • Health (HHS,NIH) 487 • Space (NASA) 110 • Energy (DOE) 95 • Science (NSF) 78 • Agriculture (USDA) 17 • Commerce (DOC) 7 • Education (ED) 7 • Environment (EPA) 6 • Transportation (DOT) 6

  19. Project selection process Integrity of selection process—key to program success • Independent review panel of experts (vol.) • 3-5 proposals e-mailed to each reviewer • Reviewers grade proposals • scientific/technical merit • commercialization potential • Review panel convenes, ranks proposals • (1) Must fund, and (2) award if funds available • Agency official makes awards [choice] Balance between very new ideas and commercial viability

  20. Key features • Grants & contracts, not loans • truly early-stage, no pay-back, nodebtburden • program continues to fund high-risk research • Small business owns intellectual property • government must protect IP for 4 years • agency retains royalty-free license forgovernment use only of technical data (IP)

  21. Federal Government Small Businesses SBIR program evolution 1982

  22. Federal Government State Government  Quasi-Government Corporations  Economic Development Entities  Technology Centers Small Businesses SBIR program evolution 1982

  23. State/regional assistance programs • Non-profit org • Matching funds established with state govt funding (1:2) • Firms required to find commercial partners • Firms receive funds in installments only when they pass business milestones: • Business plan, management structure, marketing strategy, secure private risk capital • Assistance also includes: matching with VCs, angel network, mentor networks, incubators, universities, export assistance • Conditional payback: • 5% of sales, if successful - 2-3 times original investment • self-financing after +- 5 years

  24. Modified 3-phase structure PHASE I • Feasibility of idea • $100,000 (1 year) PHASE II • Full R&D, prototype • $750,000 (2 years) • Commercialization plan “PHASE IIb” (NSF) ≈ $400,000 initially → $350,000 only with matching invest. $700,000 cash PHASE III • Commercialization stage • Use of non-SBIR funds (private capital or federal follow-on) $1,450,000

  25. Outreach & assistance initiatives • Outreach to bring in new firms. Is needed: • to maintain quality of proposals, cutting-edge research • to improve geographic dispersion (political support) • Federal support for state-level assistance programs that support innovation success • Federal & State Technology Partnership (FAST) program • Rural Outreach Program • “63% of SBIR projects need assistance with commercialization activities”

  26. Federal and State Technology Partnership (FAST) Program • Purpose: to provide support to state-level organizations that help small businesses in, or interested in, the SBIR program • Mentoring networks: Business advice & counseling • Matching grants to state-level organizations • incentive for states with lower levels of SBIR participation • administered by SBA • Target: All states eligible, one grant per state • Funding = FY 2001: $3 million, 30 grants FY 2002: $3 million, 27 grants FY 2004: $2 million, 10 grants(Grant size: $100K)

  27. Rural Outreach Program • Purpose: to geographically expand competition for SBIR awards by supporting outreach efforts in states with low levels of program participation. • Target: 25 rural states • Matching 5-year grants: one per state, 1:2 (state:federal) • Funding level: FY 2001: $1.5 million, 25 awards FY 2002: $500K, 10 awards FY 2004: $250K 5 awards • Grant sizes:$40K, $52K, $80K

  28. Federal Government State Government  Quasi-Government Corporations  Economic Development Entities  Technology Centers Academia Small Businesses  University Research Parks  Faculty & Graduate Students  Technology Incubators  Research Foundations SBIR program evolution 1982

  29. Small Business Technology Transfer Program (STTR)Promoting Small Business-University Collaboration • Set-aside program to facilitate cooperative R&D between small businesses and U.S. research institutions • Established 1992, recently extended through 2009 • Similar structure to SBIR, administered by SBIR offices • Funding: • Set-aside = 0.3 % of extramural R&D → $200 million • Agencies with extramural R&D > $1B must participate • FY2002: 356 Phase I awards 114 Phase II awards

  30. STTR - SBIR Differences • STTR requires research institution partner University or college / non-profit research org. / FFRDC • Research partner share: min.= 30% max.= 60% • Award always goes to small business • Requires written agreement allocating IPRs • Principal Investigator’s primary employment can be with research institution or small business

  31. SBIR program impacts • Is often only source of funding available • Enables new startups, spin-offs • Induces entrepreneurial activity (“demonstration effect”) • Enables small firms to develop innovative capacity • Complements private ventures (reduces risk) • “Success rate”: 39% of projects had sales attributable to SBIR (55% had sales or additional investment) • Market value of companies started with SBIR projects (?)

  32. Lessons learned • There is an effective role for government in funding early-stage small-firm innovation; grant and payback • One program cannot do everything: different programs for different stages • Eligibility: restrict to for-profit small businesses • Proposal selection: integrity, quality, balance (between very new ideas and commercial feasibility) • Small firms must own the IP (incentive), public programs must protect it • Need to design so that it compliments and coordinates with private risk capital (angel, VC, etc.)

  33. Lessons learned (cont’d) • Must have university-specific part of program, or separate (linked) program (like STTR) to deal with IP and promote spin-offs • Must coordinate with regional/local business assistance programs • Outreach is needed to maintain program at cutting-edge (new blood) • Outreach (not quotas) to achieve geographic dispersion--helps create political support • Program flexibility where possible

  34. SBIR & STTR ProgramsOffice of Technology U.S. Small Business Administration For more information • Contact individual agency websites • Cross-agency websites: www.sba.gov/sbirwww.sbirworld.com Ronald S. Cooper ronald.cooper@sba.gov (202) 205-6455

  35. Dr. Ronald Cooper Small Business Administration USA

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