By Sramana Mitra and guest authors Irina Patterson and Candice Arnold
Sramana: I think the DOE [angle] is very straightforward because the energy agenda is very present. Clean tech is an active field of entrepreneurship right now, so we understand the DOE very well, and we understand the synergy between the clean tech community and the DOE.
But my question was, for instance, healthcare IT is an area where we are seeing a lot of entrepreneurs right now. Does NIH support healthcare IT companies? These are not necessarily research intensive projects. These are solving problems in using perhaps technology that is ten years old but just hasn’t been applied to the healthcare domain.
Sean: It depends on the specific technology level. For the most part, SBIR really is more technology and innovation oriented. That doesn’t mean that there aren’t a rich set of commercial applications or businesses to be built on consumer facing technology, and so forth. The SBIR program won’t necessarily solve all those issues very clearly.
Sramana: Is there some other part of the SBA’s program or a solution to the problem of actual funding, because your goal is to fund entrepreneurs not necessarily fund technology, right?
Sean: Correct. So, let’s step back for a second. This is one program. Is it solving all the gaps in the market? Absolutely not. Let’s be very clear about that. So, let’s step back to where are there gaps in the market. Are entrepreneurs getting access to capital in all the ways they need to?
The clear answer is no. Not only have we seen deterioration in the credit markets – that everybody talks about – but for earlier stage entrepreneurs, there are other parts of the capital ecosystem that are even more important than traditional credit markets that have been hit hard as well. We’ve talked about venture, but by the way, even before the current financial crisis, for the most part, much of venture had been migrating away from early stage anyway.
Separately, the angel market has taken a big hit in the financial crisis. The biggest numbers I’ve seen show angel investing down 40% in 2009. By the way, there are other sources of financing for entrepreneurs that don’t get talked about as much such as, personal credit cards, and access to their home equity line of credit.
That, obviously, had taken a big hit as well. So, what we’re seeing is across the board is that there has been a meaningful depletion of sources of capital for early-stage entrepreneurs. Do we have the silver bullet of, “Okay, so here are all the answers and how to address those?” No, we certainly don’t.
Sramana: I understand that SBIR’s focus is technology, which actually addresses a very serious gap in the market. What you’re trying to with SBIR is very good because for people who need to invest a year or a couple of years or three years even in building serious technology, they don’t have a prayer at getting any early-stage equity capital.
So, you are trying to address a very serious gap in the market by doing that. Would you tell us a bit more about what is the easiest and fastest way to do it, and what are the expectations in terms of timeline and the process of how our entrepreneurs can access your program?
Sean: Right now, it is administered by eleven different agencies. Each agency has its own processes and timelines for solicitations. We are looking to improve the timeliness of the process, but right now, the concrete way is to go to the specific agency’s website and learn more about its program.
Sramana: Is it a six-month application process, three-month application process, a year? How long does an entrepreneur have to budget?
Sean: The way the SBIR program works is in two phases. The first phase is a grant of up to $150,000, and then a subset of those grantees are eligible for a second grant of up to $1 million. I would say that across the eleven agencies, 90%, from the submission deadline to the actual award, are done within six months. The one additional factor is, what are the deadlines for the submissions? Depending on the timing for an individual award, if you factor that in, it can be longer.
Sramana: I see. So, it is not a year-round submission process?
Sean: Yes. Each agency does it differently, but all of them have fixed submission times. Some have two per year, some have more than two per year, and so forth.