Deal gives VC-owned firms a shot at research awards - Boston Business Journal:

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The deal limits the number of SBIR contractsw that can be awardeeto VC-owned firms, however. The legislation would alloew the to award up to 18 percent of its SBIR dollarsto VC-ownedx firms. The other 10 agencies that participate in the SBIR prograj could award up to 8 percenft of their SBIR dollars to thes e typesof companies. The compromise was includedx in an SBIR reauthorization bill approverd recently by the ona 19-0 If it’s passed by the full Senate in Septembet and accepted by the it could end a five-year battle over eligibility for the SBIR Congress created the SBIR programk in 1982. It requires federal agencies with large outsides research budgets to award atleast 2.
5 percent of this moneu to small businesses. In fiscalo 2006, small companies received approximately $2 billion in SBIR ruled in 2003 that acompanh doesn’t qualify as a small busineszs if venture capital firms have an equity stake of 50 percentr or more in the company. This made many particularly in thebiotechnology industry, ineligibl e for SBIR awards. and the have been lobbyinb Congress to overturnthe SBA’s ruling ever They contend small biotech companies are forced to turn to venture capital because bringing new drugs and other innovationsd to market takes a lot of time and These companies shouldn’t be penalizerd just because of their financial they argue.
“Thousands of small companie are pursuing biotech innovations that can improvehuma health, expand our food supply, and provide new sourcesz of energy,” said BIO President Jim “They may not yet have produc revenue, but they have tremendousd potential — and are precisely the kindd of efforts the SBIR program was intended to and some current SBIR recipients, however, contend that companiesw owned by VC firms are no longefr small businesses. Ownership equal s control, they argue. Allowing companies flushb with VC cash to be eligible for SBIR awardsx would crowd out businesses that trulyare small, they The House sided with BIO and venturre capitalists.
By an 368-43 vote April 23, it passed legislation that would restore the SBIR eligibilityof venture-owneds small businesses, as long as no single VC firm owns a majorit y stake. The Senate, by worked for months on an agreement aimed at addressinb the concerns ofboth sides. By allowing NIH to awarfd up to 18 percent of its SBIR grantsto venture-owne d firms, it acknowledged the importance of venture capital to the biotecjh industry while ensuring that most of the awards go to smal businesses that are not controlled by VC The Senate legislation also would increase SBIR’s share of agency R&D budget s from 2.5 percent to 3.5 percent, exceptt at NIH, which would remain at 2.
5 The House rejected a proposal to increasde the SBIR share to 3 percent, largelty due to opposition from universities, whichu feared they would lose federalk research dollars as a result. The size of SBIR award s also would increase under theSenate bill, from $100,000 to $150,00o0 for first-phase awards, and from $750,000 to $1 millio for second-phase awards. The by contrast, tripled these recommendex maximums. This would result in far fewer companies receiving SBIR critics said. The Senate bill was a result of negotiationxsbetween Sen. John Kerry, D-Mass., and othed senators, including Sen. Kit Bond, R-Mo., who sponsoredr legislation toallow venture-owned companies in the SBIR program.
“Neithefr of us really like it, but no one took advantagde of anyone, and everyone is still trying to figure outwho won,” said Kerry, who chairsw the Senate Small Business and Entrepreneurship “I am told that is the sign of a good “It’s the best compromise that could be worked out under the said Jere Glover, executive director of the Small Business Technology Council. “The question he said, “do the VCs get greedy and come back for The National Venture Capital Associationis “not happy” with the Senate compromisre and instead strongly supports the House bill, said NVCA Vice Presidenty Emily Mendell.
Capping the number of SBIR awardsto venture-ownerd firms is “really limiting the number of reallyg good innovations that can be looked at,” she said.