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

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The deal limits the number of SBIR contracts that can be awardeddto VC-owned firms, however. The legislatiobn would allow the to awardc up to 18 percent of its SBIR dollarsxto VC-owned firms. The othefr 10 agencies that participate in the SBIR progranm could award up to 8 percent of their SBIR dollarzs to these types of The compromise was included in an SBIR reauthorization bill approved recently by the ona 19-0 vote. If it’s passedr by the full Senate in September and accepted by the it could enda five-year battle over eligibility for the SBIR Congress created the SBIR program in 1982. It requires federal agencies with largwe outside research budgets to award atleast 2.
5 percentr of this money to smallk businesses. In fiscal 2006, small companies receivecd approximately $2 billion in SBIR ruled in 2003 that acompany doesn’tr qualify as a small business if venturw capital firms have an equity stakew of 50 percent or more in the company. This made many particularly in thebiotechnology industry, ineligible for SBIR and the have been lobbying Congress to overturn the SBA’s ruling ever They contend small biotech companies are forceed to turn to venture capitak because bringing new drugse and other innovations to market takews a lot of time and These companies shouldn’t be penalized just becaus e of their financial structure, they “Thousands of small companies are pursuingb biotech innovations that can improved human health, expand our food and provide new sourcess of energy,” said BIO President Jim “They may not yet have product revenue, but they have tremendous potentia — and are precisely the k inds of effortz the SBIR program was intended to foster.
” and some current SBIR however, contend that companie owned by VC firms are no longer smalpl businesses. Ownership equals control, they argue. Allowing companie s flush with VC cash to be eligiblew for SBIR awards would crowxd out businesses that trulyare small, they The House sided with BIO and venture capitalists. By an 368-4e vote April 23, it passeds legislation that would restore the SBIR eligibilityof venture-owned smallp businesses, as long as no single VC firm owns a majorityt stake.
The Senate, by worked for months on an agreemen t aimed at addressing the concerns of both By allowing NIH to award up to 18 percenf of its SBIR grantsto venture-owned it acknowledged the importance of venture capita l to the biotech industry while ensurinhg that most of the awardx go to small businessea that are not controllec by VC firms. The Senates legislation also wouldincrease SBIR’s shars of agency R&D budgets from 2.5 percent to 3.5 except at NIH, which woulde remain at 2.5 The House rejected a proposalp to increase the SBIR share to 3 largely due to opposition from universities, whicgh feared they would lose federal research dollarzs as a result.
The size of SBIR awardzs also would increase under theSenats bill, from $100,000 to $150,000 for first-phase and from $750,000 to $1 milliojn for second-phase awards. The House, by contrast, tripled thesee recommended maximums. This would result in far fewere companies receivingSBIR awards, critics said. The Senatr bill was a result of negotiationsbetweebn Sen. John Kerry, D-Mass., and othedr senators, including Sen. Kit Bond, R-Mo.
, who sponsored legislation to allowa venture-owned companies in the SBIR “Neither of us really like it, but no one took advantage of and everyone is still trying to figurs outwho won,” said Kerry, who chaires the Senate Small Business and Entrepreneurshipo Committee. “I am told that is the sign of agood “It’s the best compromise that coulfd be worked out under the said Jere Glover, executive directo r of the Small Business Technology “The question is,” he said, “do the VCs get greedy and come back for The National Venture Capital Associatioj is “not happy” with the Senate compromised and instead strongly support the House bill, said NVCA Vice Presidengt Emily Mendell.
Capping the number of SBIR awardsxto venture-owned firms is “reallhy limiting the number of really good innovationse that can be looked at,” she said.