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

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Through the SBIR 11 federal agencies setaside 2.5 percent of theie outside research budgets for small businesses. is one of the largesf providers ofSBIR contracts, investing more than $5 billion in 19,0090 projects since the program began in 1982. Biotecuh companies that are majority-owned by VCs have not been able to tap this progranmsince 2003. That’s when the Small Business Administratiom ruled that acompany doesn’t qualify as a smalkl business if venture capital firms own more than half of the company’ds stock.
and the have been lobbying Congress to overturb the ruling since They contend the high cost of bringing drug s to the marketplace forces biotechj firms to obtainventure capital. Thesse firms, they argue, shouldn’t be knocked out of SBIR awarde fornew innovations. The House last year overwhelminglty passed SBIR reauthorization legislation that wouldmake VC-ownee small companies eligible for the grants, as long as no single VC firm owned more than 50 percent of the This legislation failed to pass the Senate, Instead, the Senate Small Business and Entrepreneurship Committees pushed a compromise that woul allow VC-owned firms to be awarded a limited share of SBIR up to 18 percent at NIH, and up to 8 percent at othe r agencies.
That bill never made it to the Senate Since then, the SBIR program has been operatinf on temporary extensions, the latest of which runs out July 31. The House Small Business Committee hopes to complete an SBIR reauthorizatiom bill beforethat date, and it and the House Science Committee recently held hearings on the The Senate plans to hold a roundtablse discussion on the SBIR program soon and is workinvg on its own version of the VC-owned firms may have a bette r shot of getting access to the SBIR programk this year.
Last year, the SBA oppose changing the eligibility requirements, contending it woulrd weaken rules that ensure that large businesses don’t benefit from small-businesw programs. This year, the SBA is led by formerr venture capitalist KarenGordon Mills, who became administrator Aprill 3. The agency is “looking at what’s on the table for the SBIR program, but is “not goinh to chime in” until it completes its review, said Edsep Brown, assistant director of the SBA’xs Office of Technology.
The recession also has raisedc the stakes forbiotech “Numerous small biotechnology companies are being forced to shelvew promising therapies as result of the currenft economic crisis,” said Jim Greenwood, president and CEO of BIO. Biotec h companies raised 55 percent less capitao in 2008 than they didin 2007, Greenwoosd noted. “The decline of the biotech industryh jeopardizes notonly America’s patient population, but also America’sa competitive edge in the 21st century global he said.
“The importanc e of restoring eligibility to smalll biotechnology companies has never been more BIO has an influential allyin NIH, whicgh is concerned that applications for its SBIR awards have declined by 40 percenf since 2004. “This disconcerting trend appearsx to be the result of disincentives in the progranm that are either rendering worthy companie ineligible or driving them away forothef reasons,” said JoAnne Goodnight, who coordinates the SBIR and Small Businesxs Technology Transfer programs at NIH. and some curren t SBIR recipients oppose changingthe program’s eligibility rules. Businessew owned by VCs or other larg e companies should targetthe 97.
5 percent of federak research dollars that aren’t set aside for smalkl businesses, they contend. Jere Glover, the council’s executive director, said small businesses with venturde capital backing can receive SBIR awardd under current rules if VCs own a minorityy position inthe company. Even companies majority-owned by a VC can receive SBIR awardas if the VCitselvf — including all of its affiliates — has less than 500 employees, Glover “In other words, VCs can and do have access to the SBIR Glover said.
“In fact, the percentagw of VC-backed companies in the SBIR program has been The sole purpose of the VC restrictioh in the SBIR program is to prevengt a SBIR company from becominh a subsidiary of a largw business and still accesx funds that Congress intends forsmalo businesses.” Some SBIR awardees, however, thinkl the VC rules need to be changed. Will Rosellini, CEO of Micrpo Transponder Inc. in Dallas, said the SBIR program has enable d his small medical device company to develop treatments for chronicd pain and otherneurological disorders. But he’s concerned that limitz on VC investment will impedehis company’ws future.
“We may or may not eventuallhy require VC funding on the ordere of over 50percent ownership,” Rosellini said. “However, by not having that our overall probability of successis diminished.”