The House Small Business Committee and the House Science, Space and Technology Committee announced an agreement to reauthorize the Small Business Innovative Research (SBIR) Program. The reauthorization legislation was submitted as an amendment to the National Defense Authorization Act, passed by both the House and the Senate in mid-December. Under the agreement, majority owned and controlled venture capital-backed enterprises can compete and win government grants for up to 25% of the research topics released by the National Institute of Health (NIH), the Department of Energy (DOE), and the National Science Foundation (NSF). The Department of Defense (DOD) and other participating agencies will be able to award as many as 15% of the SBIR topics to privately backed firms. To put this in perspective, in 2010, there were nearly 5000 SBIR Phase 1 awards valued at nearly $600M.
The Federal Government has not always been so kind to venture capital-financed firms, at least when offering SBIR R&D grant access. Indeed, the U.S. Small Business Administration had consistently ruled since 2001 that VC-backed enterprises could not receive SBIR funding. The reasons are outlined in a 2009 Wall Street Journal blog post.
The Venture Capital community has actively been advocating this legislative change for many years through the National Venture Capital Association. Will venture-backed companies max out their annual topic allocation given the current funding environment, or will narrowly defined SBIR research topics, many of which are tailored to support specific procurement programs, keep them away? Companies will need to carefully evaluate how much the SBIR grant will assist them in getting to a viable commercial product that can appeal to a broad market.
Regardless of the final number, more active engagement of the VC community with the defense laboratories can be mutually beneficial in the long-term, potentially bringing higher return on taxpayer-funded R&D, in addition to improvements to the operational capabilities of Soldiers, Sailors, Airmen and Marines.