By Sramana Mitra and guest authors Irina Patterson and Candice Arnold
Sean: Last year, Small Business Innovation Research (SBIR) put $2.5 billion dollars in the hands of small-business [owners] who [have] innovative technology companies. And just as a point of reference, last year the entire venture industry put in only $1.7 billion, in terms of seed stage financing.
So, here we have a program, again, that’s big at a time when early-stage companies are struggling with getting access to capital. These are meaningful dollars being deployed.
Sramana: Tell us more about that program. On a variety of different levels, we need to understand the SBIR program better. For instance, who administers the program? How are deals evaluated? What gets funded through this program?
Sean: It works with eleven different agencies and each agency, obviously, has a program mission. So, the Department of Energy (DOE) has a mission that’s different from that of the Department of Defense (DOD) that’s different from that of the National Institutes of Health (NIH), and so forth.
Each agency has its own particular mission. NIH is focusing on pharmaceuticals and medical diagnostics, and so forth; DOE is focusing on clean tech and whatnot. Again, just as they fund R&D to our other set of constituents, they also say, “Let’s have grants that we make available to small businesses.” So, the actual decisions are made at the individual agencies, consistent with areas of importance in their overall R&D strategies.
Sramana: There are certain sectors of the market that are particularly cash strapped right now. Part of it is because the venture industry is faltering quite a bit. You must know this from your experience.
One of the reasons that money has not been deployed as much through the venture capital system is because there are problems with the venture capital market. So, what I was trying to gauge was, which parts of this function are you addressing? For instance, in IT, the area that has taken the maximum amount of venture capital, I suppose. Does that fall within the realms of any of the agencies?
Sean: Absolutely. The biggest participant is actually the Department of Defense, and IT is a critical piece for them. In fact, IT is one of the areas that cuts across multiple agencies.
An important part, on the venture side – and why this program is potentially incredibly important – is these grants are going to the earliest stages of technology development. But even before the current drop-off in venture investing, for the most part, venture capital really didn’t go this early.
So, particularly when looking at truly early stage, this is an incredibly important source of capital. We’re looking at this program and saying, “Wow, at a time when entrepreneurs are struggling to get access to capital, this is more important than ever. What can we do to make the program more entrepreneur friendly? What can we do to expand the outreach so more entrepreneurs learn about the program and get access to it?”
Sramana: I understand. It’s very tough for early-stage entrepreneurs right now. Going back to my question about IT, a lot of the IT work is going on, the places where innovation is happening at the most prolific level have nothing to do with defense. It’s in consumer technologies. Consumer technology has become very interesting, very attractive, so where in your scheme of things would that kind of innovation fall?
Sean: There are many answers to that question. First of all, I think there’s probably some evidence that in consumer technology, the levels of investment have been reasonably high, particularly as it relates to consumer IT where the costs of technology development have dropped precipitously because we don’t need the level of investment at the venture capital level that we have historically. That’s one set of conversations.
Nobody at the agencies is necessarily keying up to say, “There’s a gap in the market of consumer IT spending.” What they are identifying are broad topical areas of interest to their mission.
Let me give you an example of that. A technology like sensor development may be important to the DOD for a particular set of applications as it relates to detecting explosive devices. The same set of technologies might be interesting to the NIH for breast cancer detection.
So, part of the notion is that you’re investing in technologies that potentially have a wide range of applications, whether those are government use, business use or ultimately consumer use. We’re seeing similar things at DOE; right now, there are many areas of investment opportunities.