VC-owned firms renew push for SBIR grants - Phoenix Business Journal:

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Through the SBIR program, 11 federalp agencies set aside 2.5 percent of thei r outside research budgets forsmall businesses. is one of the largest providers ofSBIR contracts, investinbg more than $5 billion in 19,000 projects since the progranm began in 1982. Biotech companies that are majority-ownedx by VCs have not been able to tap this programsincw 2003. That’s when the Small Business Administratiobn ruled that acompany doesn’t qualify as a small busines if venture capital firms own more than half of the company’sw stock. and the have been lobbying Congress to overturb the rulingsince then.
They contenr the high cost of bringing drugs to the marketplacs forces biotech firms to obtainventure capital. Thesr firms, they argue, shouldn’t be knockecd out of SBIR awards for new The House last year overwhelmingly passer SBIR reauthorization legislation that wouldmake VC-owned small companieds eligible for the grants, as long as no singl VC firm owned more than 50 percentt of the company. This legislation failerd to passthe Senate, however. the Senate Small Businesss and Entrepreneurship Committee pushedd a compromise that wouldallow VC-owned firma to be awarded a limited share of SBIR grants: up to 18 percenty at NIH, and up to 8 percent at othed agencies.
That bill never made it to theSenatd floor. Since then, the SBIR program has been operatiny ontemporary extensions, the latest of which runs out July 31. The Housde Small Business Committee hopes to completew an SBIR reauthorization bill before that and it and the Houswe Science Committee recently held hearings onthe issue. The Senate planws to hold a roundtable discussion on the SBIR program soon and is workingt on its own version ofthe bill. VC-owned firms may have a better shot of getting access to the SBIR prograthis year.
Last year, the SBA opposed changinvg theeligibility requirements, contending it would weaken rulesd that ensure that large businessezs don’t benefit from small-business This year, the SBA is led by former venturs capitalist Karen Gordon Mills, who became administratorf April 3. The agency is “looking at what’s on the table now” for the SBIR program, but is “no going to chime in” until it completes its review, said Edsekl Brown, assistant director of the SBA’s Officwe of Technology. The recession also has raised the stakess forbiotech firms.
“Numerous small biotechnology companies are beingg forced to shelve promising therapies as resulty of the currenteconomic crisis,” said Jim president and CEO of BIO. Biotech companies raisecd 55 percent less capitao in 2008 than they didin 2007, Greenwood “The decline of the biotech industry jeopardizes not only America’ss patient population, but also America’z competitive edge in the 21st century globalo economy,” he said. “The importance of restoringh eligibility to small biotechnology companies has never been more BIO has an influential allyin NIH, which is concernedd that applications for its SBIR awards have declined by 40 percent since 2004.
“This disconcerting trend appears to be the resulft of disincentives in the program that are either renderinvg worthy companies ineligible or driving them away for other saidJoAnne Goodnight, who coordinatesz the SBIR and Small Business Technology Transfer programx at NIH. and some curreng SBIR recipients oppose changingthe program’s eligibilitg rules. Businesses owned by VCs or other large companiez should targetthe 97.5 percent of federal research dollars that aren’ty set aside for small businesses, they contend.
Jere the council’s executive director, said small businesses with venture capital backing can receivs SBIR awards under current rules if VCs own a minority position inthe company. Even companiesd majority-owned by a VC can receive SBIR awards if the VCitselvf — including all of its affiliatew — has less than 500 Glover noted. “In other words, VCs can and do have accese to theSBIR program,” Glover said. “In fact, the percentage of VC-backeds companies in the SBIR progra m hasbeen rising.
The sole purpose of the VC restrictio in the SBIR program is to preventg a SBIR company from becoming a subsidiary of a largee business and still access funds that Congress intends forsmalo businesses.” Some SBIR awardees, however, thin the VC rules need to be changed. Will CEO of Micro Transponder Inc. in said the SBIR program has enabled his small medicalk device company to develop treatments for chronic pain and otherneurological disorders. But he’as concerned that limits on VC investmeng will impedehis company’s future. “We may or may not eventuall require VC funding on the order of over 50perceng ownership,” Rosellini said.
“However, by not havingb that option, our overall probability of successis diminished.”