SBIR companies were meant to do
three things:
1) beg the government for money;
2) do good science and engineering;
3) create economic acitivity from volume sales.
Companies who can do the first two are dime-a-dozen; the government
could choose winners by lottery. Companies who do the third as well are
the winners both as companies and as contributors to national goals
(whatever they are for SBIR). If the government has an economic goal
for SBIR, it will have to pick companies who do all three well, and use
the left-over money (which will be lots) for new companies who haven't
yet had a chance.
the buzz barometer for Chicago's high-tech potential reached new heights in 1999. Plans were unveiled to build four new technology centers. Public officials swore allegiance to technology initiatives as the engine for economic growth. And a record number of venture capital dollars poured into local technology firms. ... The amount of venture capital money invested in increasing from $51.M in 1995 to $185M in 1998, according to PricewaterhouseCoopers. During the first three quarters of 1999, Illinois technology firms raised $226M. [Silicon Prairie, Chicago Tribune, Dec 27] OK, belly up to the government bar, too, if those investors overlooked your potential.
More Government Science Money. The administration says it will ask Congress for more science money. Basic research, not tech applications stuff like ATP. A presidential panel said basic research was slipping but that applied research was doing fine. Is it just politics or will it actually pass? Depends. Lots of politics in Presidential election year: money will be passed out to target groups and applied research will have its lobbyists working hard, SBIR included. Although such a panel finding undercuts the base for SBIR which was passed on the theory that applied research in small business was lacking. Since small business has no advantage in basic research anyway, any diversion of SBIR into basic research would just be vote-buying with no expected value-added.
Want Some Free SBIR Consulting?. Read Guy Kawasaki's ten rules for SBIR proposals (oh, he calls his subject a business plan). Less is more; reasonable numbers; important idea; no hyperbole; no Chinese math; watch appearances; not as a file attachment; decreasingly list the team members; show you can deliver; less is more (no rule ten). While government guys rarely think like VCs, they respect these principles. You'll do better with business plan rules than with science publication rules. Hit ' em; hard; hit 'em early; keep it short. If you have a hot idea with numbers to back it up, you don't need pages of blather. Remember, you are trying to differentiate yourself, not blend in.
And a savings-and-loan company, Washington Mutual, started a $150M VC fund; everybody's a VC these days to back more companies like Cree. Got a good e-commerce idea? See an S&L. Meanwhile, all the companies that will never be a Cree but still want to play at science will be getting SBIR subsidies to dance to the government's tune. Join in.
As the NASDAQ made a new high despite (or because of) the Microsoft monopoly finding, good news for SBIR-like companies. Cree Research made another new high; Cree is one of the very best examples of what SBIR can and should do. Another Triple Figure An astute reader noted that SDL wasn't the only SBIR firm to have triple digit stock price. Qualcomm in the 80s got about $1M SBIR from AF and Navy at a time when it tripled from 100 to 300 employees. Judging how much effect SBIR had 0n Qualcomm's fortunes would be an interesting exercise. On the theory that victory has a thousand fathers, AF and Navy should claim credit for Qualcomm's rise to a $34B market cap including a nine-fold gain in the past 12 months. Actually, SBIR's role in SDL isn't all that different from in Qualcomm. In the mid 90s SBIR put in few million as SDL rose from 200 to beyond SBIR's 500 limit. A Pittsburgh Incubator Henry and Tommy Wang, founders of Pittsburgh Direct Technology Inc., have partnered with Ned Renzi, a general partner at the Hazelwood-based CEO Venture Fund, to found iVenture Labs, an incubator that they hope will foster growth of other tech firms here. iVenture will offer Internet startups office space at Pittsburgh Direct's Oakland building as part of a total service package including: Web and software design expertise from the Wangs' company; legal services from Buchanan Ingersoll; on-site marketing assistance from Zer0 to 5ive; assistance in locating experienced CEOs; and access to venture capital. In exchange, the promising but unproven startups offer equity to iVenture's partners. "There's a big push in Silicon Valley to have incubators," said Jack Roseman, associate director of Carnegie Mellon University's Donald H. Jones Center for Entrepreneurship. "It makes sense (for investors to reside) in the same place as the investment." [Pittsburgh Business Times, Dec 20] Florida Tech Policy - Do Something. A state-funded task force plans to meet Dec. 17 in Fort Lauderdale to map out a legislative strategy to boost information technology businesses in Florida. The Information Service Technology Development Task Force, established by the Legislature this year, has been traveling around the state since it became fully staffed in October to increase awareness about its mission. The task force is expected to make recommendations to the Legislature in February and 2001 for policies to foster free-market development and the use of information technology in Florida. [Lisa R. Schoolcraft, Jacksonville Business Journal, Dec 13] Advice from federal SBIR experience: don't subsidize firms directly. Senate Arranging Deck
Chairs Taking business risk is the job of private capital markets. The job of government is to minimize systemic risks. Tough luck if you lose money at the stock exchange, but it's government's job to make sure you aren't mugged on the way there." [DP Goldman, Forbes, Dec 13] It is equally NOT government's job to reduce business risk for new technology. Federal agencies (who are thinking at all about such choices) need to structure their SBIR programs to reduce only technical risk (the chance that it will not work) and NOT business risk (the chance that it will not sell). The co-investment, used by enlightened agencies as a market credibility clue and hated by the SBA's Office of Advocacy, allows a transition between technical risk and business risk. Tech Investment Competitiveness. Never mind the facts, the US government must have high-tech subsidy programs (like SBIR and ATP) to maintain national competitiveness. Baloney! The US leads the world in tech investment as a percent of GDP. 4.6% in 1198 and an estimated 6% in 1999, whereas our competitors highest is Sweden with 3.5%. Japan 2.6%, Germany 2.1%. [facst from Business Week, Dec 20] Well, SBIR is a mirage anyway since it adds nothing to high-tech investment Wake-Up Call for Subsidy Programs The Ag Department had a classic dreamy-eyed program that its IG says was nonsense. The Alternative Agricultural Research and Commercialization Corp.was created to finance new industrial uses of crops, a classic handout to rurual areas. But now USDA will be closing the program after the IG said it lost most of its money in bad investments - 75% of the $43M million in "investments". Investments - Hah! Investments in farm state votes. It's the same political payoff as SBIR "investments". A government agency is supposed to pick winning investments from among market failures. If the IGs of the departments took the same hard line with SBIR, that program would be in trouble also. Except, SBIR has the political protection of the Small Business Handout Committees of both House and Senate to keep alive the market-failure baloney. Congress Adjourns With No New SBIR. Since the have-not states could not find a compromise with the have states, SBIR re-authorization will have to wait until next year. Congress went home without acting on it. In a way, the advocates of a "merit-based" SBIR have only themselves to blame for the stalemate. They wanted and got a visibly big SBIR in 1992 but they then advocated that the agencies muddle without any demonstrable national benefit. For 15 years they have more excuses than investors and have taken the government's dollar for the government's business. So, if it is just going to be a handout to small business, it becomes a pie to be shared "equitably", which is an invitation to spread pieces around the table. So, the present beneficiaries who had captured the politics of SBIR will have to be shocked, shocked! at the silicon-envy of Nevada and Missouri. The brawl could get ungly despite all the money running around to be shared. Amid the glitter and glitz of the Las Vegas Hilton casino, the SBIR National Conference told the rookies about the lottery called SBIR proposing. The usual questions got the usual answers. DOD revealed that Fast Track is getting a bigger piece of Phase 2 awards at which the political SBIR pushers groaned.The Las Vegas Congresswoman set an SBIR conference record with a five minute luncheon speech. SBIR Challenges and Opportunities The National Research Council has finally published a report of its Feb 98 syymposium on SBIR.Many different speakers from Congress to participating companies opined on what is right and wrong with the approach and analysis. The critics and the cheerleaders got their say. No verdict excpet that it needs continuing study (what else do researchers recommend?). The NRC paraphrased well what all the speakers had to say plus the most important questions from the audience.
Summit on Innovation: Federal Policy for the New Millennium The wonks will gather Nov 30-Dec 1 to discuss innovation. The White House's National Science and Technology Council wants the summit to furnish valuable public input as it develops Federal policy to enhance innovation into the new millennium. A gaggle of policy wonks have submitted papers that you can read by academics and associations. One paper, by the National Commission on Entreneurship recommends SBIR be re-authorized as a commercialization of technology vehicle with three changes: larger awards, multiple awardees required to provide data on past commercialization, and extension of DOD Fast Track to other agencies. Thinking About an Energy SBIR? DOE stats say that in 1999, 32 companies won a Phase II award for the first time out of 69 companies altogether (46%).In 1998, 40% of the companies that won Phase I awards, won DOE SBIR award for the first time, a number that has been about the same for nine years. For Phase II 56% won a DOE Phase II for the first time. DOE claims Phase III success in sales and funds raised to pursue commercialization in amounts of nearly $1B - three times the DOE investment - where 70% percent of Phase II projects got Phase III money. The average for Phase 1 in 1999 was 17% funded, a number that doesn't mean much since it measures how well DOE advertises its real objectives rather than, as the SBIR advocates like to spout, a keenly competitive program. Proposals are due Feb 29. Republicans Love
Immigration
NIMBBY - Not in My British Back Yard The Wellcome Trust, the world's wealthiest research charity, cannot build a $160M science park in the countryside near Cambridge England yesterday lost its controversial application Wellcome's head of genomics called the rejection a "national disaster" and that Britain risked losing its leading role in the mapping and decoding of the genes that provide the human blueprint. Wellcome saw its plans as a test of the Government's stated commitment to encourage the development of Britain's science research centres. [The Times, Aug 19] Cambridge pretends it is growing to rival Silicon Valley but national politics still controls local decisions despite the devolution moves for Scotland and Wales. Young Triangle companies raised far more outside funding than ever in the latest quarter. Simply put, it was a blowout quarter. The $135M raised by 19 privately owned Triangle businesses in the second quarter exceeds the amount raised in all of 1997 and is more than double the amount raised in the first three months of this year, according to data compiled by the accounting firm Pricewaterhouse Coopers. [Raleigh News & Observer, Aug 18] What kind of companies? SciQuest.com sells scientific products over the Internet; Protein Delivery, a biotechnology company; Koz.com, which sells its "community publishing systems" to the online versions of newspapers across the country;. BuildNet, which is developing an electronic commerce service that will link home builders and suppliers; Argomed, medical-devices; awaiting FDA approval of a device that would be used in a low-cost, minimally invasive procedure for treating an enlarged prostate; KV Labs, a network management software company; Orolgic, semiconductor company which expects to have a prototype microchip to show to prospective customers such as Cisco Systems and Nortel Networks; Touch Research, assembles networks of doctors to take part in clinical trials for drug companies; ReadyCom handheld wireless device to let people retrieve voice-mail messages as well as make limited calls. Says a proposal, Commercialization Strategy. XYZ Inc is extremely interested in developing a commercially viable [device] in order to offer its customers enhanced device performance and manufacturability. The potential of developing an analog to [competing device] is a valuable and useful technology for a variety of device applications including [agency interest]. Complete motherhood! If you were an agency SBIR decider, what would think of this company's attitude toward commercializing anything? NO, your objective is to differentiate yourself from your competition, not to join it. Iridium's Downfall: The Marketing Took A Back Seat to Science; Motorola and Partners Spent Billions in Satellite Links For a Phone Few Wanted. [Wall Street Journal, Aug 18] Although SBIR wastes only a few million per idea on unmarketable ideas, the principle is the same. The agencies spend on their knowledge needs and the company fails or becomes a ward of the government. And still that is what the SBTC wants for the future of SBIR. Oh no, of course, they don't frame it that way. They appeal to the motherhood that science begets prosperity while avoiding the niggling details on which science and why. The idea of a market partner as a validator, as practiced by BMDO and DOD's Fast Track, cuts out the science-is-fun projects. If you have a market partner, go to those places with the project. They understand. Have-Not States Have Plenty Pity those have-not states for not getting SBIR? Save it. They are already getting more federal dollars per tax dollar paid than the other states. New Mexico $1.94, West Virginia $1.69, Mississippi, North Dakota, Montana (recognize them from Congressional SBIR hearings?) high on the list. Supported by New Jersey at $0.68. [Source: Tax Foundation, , Aug 18] A Little Politics Can't Hurt. To combat their poor performance, high-tech leaders in Chicago recently established their own political action committee, called Tecpromote, to focus attention on Illinois technology companies. Tom Thornton, who, along with Mark Glennon, started the political action committee (PAC) in July. Thornton, who also is president of the Illinois Coalition, a non-profit group that promotes development of the state's high-tech economy, said while there are many non-profit technology organizations dealing with a variety of issues surrounding the industry, those organizations are prohibited by government campaign finance laws from contributing to political candidates. Tecpromote, an acronym for technology, entrepreneurship and capital formation promotions, will be "focused on issues that impact technology companies in Illinois," said Thornton. "We will be contributing to federal and state candidates who focus on Illinois technology issues," said Glennon, who also founded the Illinois Venture Capital Conference that sponsors an annual gathering of early-stage companies seeking investors. Those issues include sharing federal funding of research; protecting intellectual property rights; prohibiting shareholders from suing unsuccessful start-up companies; creating tax incentives for employers to train IT workers; and the minimizing of e-commerce regulations and taxes. [Chicago Tribune, Aug 17]
NVCA Speaks, Boosters Howl. Who might have a better view of how SBIR could become an smart investor than The National Venture Capital Association? "Don't touch our SBIR," howl the advocates. NVCA wrote the House Science Committee to recommend some SBIR improvements in what it calls a successful program: bigger Phase 1 awards, business plans for Phase 2 proposals, accountability for multiple Phase 2 winners, more DOD-style Fast Track, and the controversial studying of some radical ideas like limits of total SBIR for any company and direct Phase 2s. NVCA takes the view that investment should produce investment-like results. The advocates' umbrage derives from their disdain for treating SBIR as an economic program; they prefer to keep their dreamy-eyed rationalization of long term (and therefore unprovable) benefits of doing run-of-the-mill research. A broadcast e-mail alert from SBTC urges everyone to the the Small Business Committee to object to NVCA's proposals without ever saying why. Of course, write the SB Committees which have no responsibility for smart investment of R&D dollars, only service to small business interests. House Science takes a different view of invasions of its science-turf by set-asides for worthy other goals. 2% here and 2% there plus earmarks for home institutions, and pretty soon science becomes a cash cow for political payoffs. NVCA's proposals make a lot of sense for an economic SBIR.
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The Endless Frontier The federal government's share of R&D support declined to 30%, the lowest percentage on record. ... Still, 988,000 scientists and engineers were engaged in US R&D work, as against 808,000 in 1985... Total UD R&D spending hit $220B another record-setter ... industry performs 75% of R&D and 85% of that is privately funded ... [Teddi Lauren, editor Photonics Spectra, Aug 99] If R&D is a national health thermometer, we must be doing well, with private industry carrying the main load. The end of the Cold War ended the myth that government has to carry R&D. The upside for new-tech is that there are lots of people interested in new-tech and you don't need a government handout to survive if you have a competitive technology
| Procurement
or Investment? Bob Weiss (CEO of Physical Sciences Inc, a biiiiig
SBIR user) divides SBIR into procurement and investment and then
analyzes how to handle the two views of SBIR. He duly notes that, It
makes little sense to apply commercial evaluation criteria to
procurement-driven research topics. He also draws a stark contrast
in arguing that agencies who provide seed capital would not be serving
"agency needs". But that is a false choice! Agencies can have both,
although few are even trying. Congress and the SBIR advocates want to dub SBIR a VC fund because it sounds good without actually thinking and acting like a VC. SBIR needs a clearer goal than seeming to be being all things to all people that actually delivers practically nothing that wouldn't have happened anyway. Any agency can take a view that a big technical advance that progresses through the marketplace is as much in its interest as serving immediate and predictable "needs". There are a lot of new technical ideas that fit into the mold of a decent new technology that can come to first useful maturity in a few years. The Weisses define an SBIR world where time to maturity is either months or decades. Unfortunately, the agencies are unlikely to act in their interests. They are more likely to act in the career interests of the intermediate managers who have little incentive to act in an agency-wide interest, let alone a government-wide interest. A new micro-electronics heat-conducting substrate would do as much for DOD and NASA as a better model of an ejection seat. Yet the ejection seat wins a lot of SBIR money because it appears to deliver a predictable and measurable "advance" within the job evaluation period of the manager. Weiss's paper can be had from the political lobby for SBIR, the Small Business Technology Coalition. |
Seed Corn for What? The Aug 4 Senate hearing on SBIR focussed on getting more SBIR into the have-not areas. Good politics and questionable economics. If SBIR is a seed corn program, why is it not being sown in the most fertile ground? Putting SBIR everywhere for reasons of equity, is like broadcasting seed corn across the whole country without regard to fertility. The have-not areas are unlikely to do anything more than eat the seed corn. Such a discussion shows that the government cannot decide what SBIR is for. It wants economic growth in places that cannot exploit technical success by research companies. Wishful political thinking in North Dakota, Wyoming, and Mississippi. Charles Wessner of NAS noted that SBIR isn't enough, that companies who succeed pick and up and move to where they find a cluster. Wessner echoes the teaching of competition guru Michael Porter who expounds on the idea of clusters as the hothouse of competitive industries. But it is a message that politicians intent on distributing wealth don't want to hear. No witnesses were called to report on research into how high-tech economic areas grow and whether government money from programs like SBIR make any difference. There is a general feeling that SBIR does good without ever analyzing whether such feeling has any basis in reality. And the advocates are doing well at impeding any realistic evaluation. Meanwhile, the agencies are doing their best to appropriate SBIR to their immediate programs with little attention to any external benefit. Not to worry, as long as the Senate has two members from every empty state, those states will get a piece of almost every pie. |
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Why is New Hampshire #1 and Vermont #5 while Montana is #49 and Wyoming #50 in high-tech jobs as a percentage of all jobs? Aren't they all empty, have-not states that need help from SBIR? Is there a flaw in the logic or assumptions of the Western SBIR alliance? Stats from the Progressive Policy Institute.
| The
Missiles Are Coming. Forecasters edge ever closer to a rain if missiles from rogue states and even possibly a few "civilized" states. Just this weekend the lead story in The Economist (July 31) and an open briefing by the head of DIA to an international conference of futurists shout "it's coming". With Republicans holding Congress, the likely response is to spend more money at BMDO (spending money is what legislatures do best). A likely further consequence is that BMDO's SBIR will continue to rise with perhaps a conversion from the devotion to new technology through the private markets to more conventional military spending on support services. The SBIR manager at BMDO will have a hard time holding back the screaming hungry managers of ordinary BMDO programs from raiding the SBIR treasury to fund stuff that has no earthly future beyond the last SBIR dollar spent on it. If you are proposing Phase 2s particularly to BMDO you will do well to help the SBIR manager project the story that your dual-use technology will indeed progress through the private markets to produce technology that the developers four years from now can take advantage of. |
Mentoring
for Have-Nots Two Senators, Levin and Kerry, neither from a classic have-not state, are floating a bill (S1435) to have SBIR winners mentor small businesses in "low participation areas" - any geographical area that gets disproportionately few SBIRs (disproportionate to what?) from an annual pot of $1M at the SBA. "One or more" awards would be made to administer the program to organizations that "represent small business concerns participating in SBIR or STTR programs". In other words SBA gets $1M, keeps 10-20% for overhead, passes the rest to an "organization" which keeps 10-20% for overhead and hands out the rest to SBIR winners to help "student" businesses. The $1M would have to be appropriated annually, not come from the SBIR set-aside. So far, no earmarks have been inserted for any state or any mentoring organization. Stand by, though, for politics. Perhaps, the have-many companies in Kerry's Massachusetts will help the have-not companies in Levin's Michigan in what could be seen as a slap or a handout for Michigan's aggressive MERRA which has been helping potential SBIR companies for 15 years. Such a fund adds dinky money to SBIR for the handholding that have-nots want without invading the set-aside percentage. And it appeals to have-not politicians' sense of "fairness" to their constituents. They feed the myth that a little government subsidy to R&D companies will build a new Silicon Valley almost anywhere. What's more likely is that it subsidizes life-style companies in life-style places which have little prospect of economic multiplication of the subsidy. |
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A Danish consultant observed about the American government attitude toward globalization that only 7% of Senators have a passport.
No Newt Means Less Science. Without Newt Gingrich's plan for more government funded science, the politics are eating science funding away to funbd other priorities, like veteran's medical. NASA science faces $1B cut; NSF $260M below President's request, especially in info-tech. The idea that government is the cutting edge of sci-tech has been eroded by the spectacular business success of high-tech firms and by the anti-government forces within the Republican Party. [facts from Wall Street Journal, Jul 30] Yes, if science funding drops, SBIR will drop automatically with it.
Fusion SBIR Companies Rejoice.
(Jul 29) The House paid off General Atomic and Princeton
University by adding $250M of fusion research to the Energy Dept. Plus
an Illinois lab in the Speaker's district got $18M. But SBIR will get
2.5% of that money although not necessarily in fusion awards that have
little commercial value. Oh sure, the proposers promise the sun but it
is a negligible chance of success multiplied by a monumental payoff if
it works. That becomes a bad bet for an SBIR program intent on
commercializing within some reasonable time. Unless you love any
R&D with any promise of any future. Odds are that some small fusion
labs will get the SBIR money. [facts from Wall Street Journal, July 28]
Now if the Republican "conservatives" can just convert one dollar of
surplus to one dollar of tax cut plus one dollar of defense plus one
dollar of payoffs. Such arithmetic worked for Reagan!
Who Does How Much US R&D?Preliminary 1998 estimates show industry R&D spending increased in real terms 7.7% over 1997 to $143.7B, or 65.1% of the total. Federal support increased 0.8 percent to $66.6B, for a record low of 30.2% of the total. "Nearly all ($140.8B) of the industry R&D funds will be devoted to R&D performed by industry itself, with the remainder directed toward academic R&D ($1.8B) and R&D performed by other nonprofit organizations ($1.0B)," Payson said. Industry, including industry-administered federally funded research and development centers (FFRDCs), is expected to perform 75.1 percent of the nation's total R&D in 1998. Of this, 85% will come from industry's own funds; federal funding will account for the remaining 15% (down from an all-time high of 32% in 1987). Most R&D spending (61.8 %, or $136.4 B) is for development. Applied research accounts for 22.6%, or $49.8; basic research for 15.6 %, or $34.4 B. NSF Report on national R&D]
If SBIR wants something useful and appropriate for government to do, it could focus on high-tech incubators because, The most difficult part of starting a small business is, of course, starting. But a growing network of business ``incubators'' has sprung up to provide a warm and cozy place for infant firms to gain strength and face the world. Incubators give entrepreneurs a place to set up shop, usually for below-market rent, and get free or discount access to a variety of services. Often there is a stringent review process for admission to an incubator, and a one- to four-year deadline by which the company must graduate and operate on its own. A recent study showed that 87 percent of incubator graduates survive for five or more years, while nationally only about half of all small businesses make it to four years. This success rate has led more universities, municipalities and even private companies to get into the business of helping others get into business. there are nearly 600 incubators in the country, compared with just 12 in 1980. [Washington Post] If SBIR is for infancy, and not for regular R&D, then incubator companies would be a good place to find investments. On the other hand, if as is currently practiced in many agencies SBIR is for regular R&D contracting, incubators are irrelevant.
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Soaring high-tech investment has significantly increased the level of sustainable growth by changing how businesses operate and boosting productivity. [Business Week, July 12] So, what is government to do when there is nothing that needs doing? Continue any ongoing programs regardless of their present irrelevancy.
It happens all the time. A scientist seeking to commercialize a promising laboratory discovery or technological innovation finds he lacks the financing, connections and business savvy to get his invention to the marketplace and his company out of the start-up phase. Providing crucial support and guidance for fledgling high-tech companies is the mission of Emerging Technology Partners (ETP), a private, for-profit venture management firm based in Birmingham. "There's a bright future for high-tech growth in Birmingham," declares ETP CEO G. Michael Alder. "With UAB taking the lead, the quality of technology being generated here is tremendous. But the infrastructure to help translate that into new companies and economic growth has lagged a bit behind. ... ETP was capitalized with $4.6 million over four years. Of that total, 85% comes from the Economic Development Partnership of Alabama (EDPA), a privately-funded group that works in conjunction with state and local economic development organizations to market Alabama and attract new industry. The remaining 15% of ETP's support comes equally from UAB, the University of Alabama and Auburn University. The University of South Alabama and the University of Alabama at Huntsville are considering providing additional support, according to Alder. ... the biggest problem in nurturing Birmingham's high-tech cluster remains attracting sufficient venture capital. While the area's venture capital pool has grown to about $100 million, more is needed to ensure that the potential that exists here has every opportunity to develop, he says. Toward that end, ETP will soon begin operating its own venture capital fund, Paradigm Venture Partners. Having already secured $6 million of a planned $10 million capitalization, Paradigm's investment decisions will be made by committee, with ETP managing day-to-day operations. With 100% of profits to be distributed to investors, Alder hopes to generate a 35%-40% annual return. [Mark Kelly, Birmingham Business Journal, July 19] All good news. The private sector is doing what SBIR was set up to do in the absence of such activity. Thus SBIR can close down. Oh, right! A government handout program will stop when the need disappears. Fat chance. The beneficiaries will find a way to argue for even more government subsidy.
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When the government judges the commercial potential of an SBIR proposal, it should start taking into account how well the company is positioning itself for e-commerce. Forrester predicts a rise from today's $8B to $108B by 2003. The Economist opines that: For evidence of how far most companies will have to go in developing their Internet strategies, look no further than their corporate websites. A few pioneers - such as Charles Schwab and Dell - have successfully transferred many of their core activities to the web, and some others may be trying their hand at a few web transactions, with an eye on developing their site an an extra distribution channel later. But more often than not, those websites are stodgily designed billboards, known in the business as "brochureware", which do little more than provide customers and suppliers with some fairly basic information about the company and its products. Most managers know perfectly well they will have to do better. [The Economist, A Survey of Business and the Internet, June 26]
The reaper did what the Republicans could not - dislodge George Brown from his seat on the House Science Committee. Brown, the oldest member of the House of Representatives, died at age 79.
The Senate is considering the idea of forcing each SBIR agency to hand over $4000 to the SBA for every award, Phase 1 and Phase 2 to help small businesses in SBIR competition. SBA would pick someone to administer this technical assistance program. Not the best idea I ever heard for spending federal R&D money. It is forcing down the throats of the federal agencies a non R&D handout to small business that the agencies rejected when given such a chance in the 1992 legislation. It was Wellstone's idea in 1992 and sounds like he hasn't given up trying to get a break for the Minnesota firm he has in mind for the contract. Picture, if you can, the SBA's teaching companies how to be competitive R&D companies. It's robbing Peter to pay the mob outside the city gates who haven't even asked for a handout. It's SBA's raiding the agencies for operating money; if Congress wants to increase SBA's appropriation do so directly. What should an agency do to keep its R&D money? Fewer Phase 1s for more money which cuts the number of new ideas explored from new companies. BMDO, for example, which limits Phase 1 to about $65K could move to $100K for a third fewer awards and thus retain about $2.5M that would otherwise go to SBA for this social program. Where is the evidence that SBIR is getting too few new companies proposing? If an agency wants new ideas, it has only to advertise so buy what it says and what it does.
| Adapt or Die says Clayton Christensen in The Innovator's Dilemma. He and George Gilder name five industries in trouble from disruptive innovation - the kind SBIR should be fostering if it is to have any impact. Telecom optical nets will wipe packet switching and AT&T. Financial Services e-business is on the rampage. Education corporate internet teaching will wipe B-schools. Retailing e-commerce wipes Sears. Health Care (a favorite industry for SBIR proposers to misinterpret) nurses with diagnostic machines and a computer challenge doctors. Microprocessors cheap chips threaten Intel. [Business Week, July 26] | If you're proposing SBIR to a commercially aware agency (some actually are), you want to project a vision of disruptive innovation as your excuse for government support. With the right vision you maybe able to leapfrog conventional economic arguments that would fail for a drop-in substitute with a minor competitive advantage. (Oh, your competitive advantage is probably less than you think and you are either misstating it or ignoring it.) |
SBIR Stocks Rocketing
(Jul 16) A few SBIR-winning firms have seen their stocks rocket onto
high ground. SDL is 15 times its low at a $2B market cap. American
Xtal which has a germanium mining deal with China and two new
strong buy recommendations is six times its low of last September. ATMI
is three times its September low on a brightening picture for
the semiconductor industry that it serves. Note that ATMI is the only
public firm in the top 25 SBIR winners named by GAO. Kopin the
2.5 times its low despite still never making a profit after seven years
as a public firm even though its technology wins attaboys from the
techies. Ibis is five times its low as revenues have recently
shot up. Cree Researchis in the stratosphere at a $1B+ market
cap and splitting its shares again. Embrex, the egg
innoculator, has doubled in the past two months. SatCon has
doubled in two months on improving news of revenues and products. Ortel
has doubled in two months. Emcore is four times its
September low. AstroPower and ViaSat have doubled. In
contrast, Irvine Sensors and Spire, two big SBIR users
are in the same going-nowhere mode they have been in for years. If the
government would use a hypothetical return calculation on SBIR
investment of an equity value of just these public companies, it could
claim that it has sensibly managed SBIR as pseudo-VC fund instead of a
mere handout. Fat chance - neither the agencies nor the SBA thinks that
way.
Fast Track Update DOD has updated its Fast Track report. Phase 2 awards went to 105 of 113 qualified proposers and have brought in $39M to match DOD's $82M. Most (70%) go to first time proposers who get a sweet 4:1 match. A few double and triple winners, plus one eight time winner Digital Systems Resources all partnered by Navy mainline programs. Smells like DSR and the Navy have found a nice arrangement for R&D that taps the SBIR pot for what the Navy might well have done anyway. Maybe it needs a reality check on the degree of technical innovation.
Since It Ain't Broke
(Jul 14) The House SB Committee praised SBIR in its findings and
introduced HR2392 to continue SBIR until 2007 while making a couple of
minor adjustments reporting, third phase assistance, and rights to data
issues. Progress on H.R. 2392 can be tracked on the Thomas Legislative Information by
searching on the bill number. No added money, no shift from the 1992
commercialization emphasis, no admin money, no regional earmarks, no
penalties for multi-winners, no big changes of any kind. It is also
silent on whether SBIR has increased small business participation n
federal R&D and whether any such increase helped federal R&D -
as was one of the prime objectives in 1982. Scuttlebutt has it that the
Senate will do the same simple reauthorization.
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| A Congressional View of SBIR While the smiling and platitudes gush from the Small Business Committees, the House Science Committee has a different view - SBIR has to be evaluated and produce an economic return. Naturally, Science wants accountability since the science programs pay the SBIR bill while Small Business committees get a free ride to hand out other people's money. The minority ranking member George Brown (CA) and the staff counsel Jim Turner published an article in Issues in Science and Technology, Summer 99, which starts with the observation that the program's growth has been largely at the expense of other federal R&D support for small business - shunting. And most accusingly most SBIR awards aimed at the commercial marketplace do not lead to major commercial successes and most SBIR wards aimed at government needs do not result in federal procurement contracts. Now that's not as serious as it sounds. VCs don't expect a majority of their investments to pan out well either, but they do expect the few big ones to pay off BIG TIME. SBIR cannot make that claim. The authors' want SBIR to be re-cast to produce winners or to be ended as a failed experiment. They do base their claims on an observation that the world of small business has changed dramatically since 1982 and that the linear model of development never applied anyway. They offer several program changes that the Small Business Committee will probably ignore as the present beneficiaries howl for continuation of a "successful" program. Unfortunately, Brown and Turner focussed their fire on the companies' failure to commercialize, a visible target, but ignored the real culprit - the federal agencies who pass out the awards. | NEW ENTREPRENEURS appear vital to healthy economic growth. A pioneering 10-country study, led by researchers at Babson College and London Business School, finds that "variation in rates in entrepreneurship may account for as much as one-third of the variation in economic growth." Among the Group of Seven economies and three others, the proportion of adults involved in efforts to start businesses is highest in the U.S. (8.4%), Canada (6.8%) and Israel (5.4%), the report says. That same measure lags far behind in France (1.8%), Japan (1.6%) and Finland (1.4%). Indeed, Finland relies on one big telecom company, Nokia Corp., for more than one-third of its domestic growth. A further finding: "Entrepreneurial societies have and accept higher levels of income disparity." An estimated 40% of would-be entrepreneurs actually launch their businesses within a year. [Wall Street Journal, June 24] |
The Politics of Positive
Speaking Writing an SBIR Proposal (or any other persuasive
document)? Take some advice from the Republican advisors (even though
the hard core Repubs don't want to). Capture voter attention by
communicating a shared value. "After years of hard work, the
independence that comes from financial security ought to be the one
thing you can count on."
Talk about the benefits to the voter. "It's the right
thing to do. Workers should have the confidence that the money they pay
into Social Security is only used for Social Security."
Make it personally relevant and emotionally powerful.
"Congress should take the appropriate steps to ensure that Social
Security will be there when you need it."
Use "Power Adjectives." Able, American, Bright, Honest,
Patriotic, Ready, Reliable.
Avoid "Puffspeak."Access, Cash flow, Feedback, Pertaining
to, Inoperative, Infrastructure, (Nelson's no-nos start with
Enhancement and Involving)
[Sources: Wirthlin Worldwide, MediaPower Group Inc., Wall Street
Journal, Jun 23]
Or use Nelson's Rules of picture nouns and action verbs, economics with
numbers, competitive advantage, and a strategic vision.
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US R&D Report. The dominance of the United States as a source of technology for other economies is declining, with reduced shares in practically every foreign market. Moreover, technology acquired by U.S. domestic companies through imports has more than tripled over the last two decades. This trend is symptomatic of the relentless globalization of R&D capability. ... Unfortunately, the current economic structure of the U.S. economy consists of a small "high-tech" sector that develops new technology, a larger sector that attempts to compete largely by absorbing technology, and the remainder that does little of either. This situation will be increasingly inadequate to sustain desirable rates of growth. ... A commonly used indicator of the amount of R&D undertaken by a high-tech industry is its R&D intensity (R&D-to-sales ratio). In the United States, relatively few industries have the high R&D-to-sales ratios (in the 8-12 percent range) that will allow continued world class innovation. These industries together only account for about 7 percent of GDP. At the same time, the composition of U.S. private-sector R&D is shifting toward shorter-term objectives, at the expense of next-generation research. [Greg Tassey (NIST Economist), "R&D Trends in the U.S. Economy: Strategies and Policy Implications, June 1999] Tassey's report does have a high platitude content with much genuflection to conventional wisdom and a bias to more R&D spending by both private and public money. Still, it should be required reading for techno-economic policy wonks. Tassey uses one of the SBIR assumptions - a false-choice between next-generation research and short-term development. SBIR can straddle the gap when intelligently directed. There are many chances, like Theseus Logic's Null Convention Logic, to get a next generation technology started and expect early investment within two years of Phase 1 SBIR. But if the government never tries, then the false-choicers will dominate every discussion and every agency will have to defend itself against a charge of ignoring the future by investing in short-range objectives for its SBIR. Tassey does cite Congressman George Brown "[We have] a clumsy and unsophisticated set of tools for evaluating the best of human innovation and thinking. We also need to be conducting outcomes assessments for our science and engineering activities and we need to collect the data needed to make these assessments," which is a message to SBIR as well.
If you are going to propose SBIR on the basis of commercial potential, you want a story that sounds like the story that Autonomous Technologies had (but didn't yet know it in 1992) on laser eye surgery. But if the government is smart, it won't let you just blather on about your dreams, it will look for third party validation in the form of investment. If, however, the government doesn't want to pick the most likely winners, then any story will do for an agency following Roscoe Bartlett's line of using SBIR to fund research.
subsidies prevent market forces from weeding out less adept farmers [John Carey, Business Week, Jun 28] What do SBIR subsidies do for/to high tech business? How might the government assure that the subsidy does NOT encourage the inept entrepreneur from wasting SBIR money just because a federal agency wants a non-market product or service?
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The GAO report "Evaluation of SBIR Can Be Strengthened" RCED-99-114 gave the House Science Committee answers it wanted before considering SBIR re-authorization. The Energy Department, showing little energy, said it needed clarification from Congress on how to use commercialization history of a company. DOD looked for no such guidance and has charged into commercialization history as an indicator with a statistical scheme that ranks the company's commercialization when it applies for an award. On balance, GAO's report does little for dealing with commercialization as a prime SBIR objective because it is not, and never has been, crystal clear to the federal agencies just what SBIR's overriding goal is. Only the program advocates know what the goal is - more dollars for their companies. |
Welcome to small company status. The Russell 2000 index of smaller stocks will now include W R Grace the former giant chemical maker. Political historians will remember Grace's chairman's preaching to the government from his Reagan-appointed Grace Commission about waste, fraud, and abuse. It was a classic case of waste being someone else's program. It wanted to downsize government in accord with the prevailing Conservative ideology by eliminating programs that did not help American business. Less business tax, less intrusive regulation, no unfunded mandates, no SBA, no Energy Department (which actually wouldn't be such a horrible idea), the whole Conservative litany. Nevertheless, in the middle of such talk, Reagan signed the SBIR law in 1982.
DOD Gets It
(Jun 14) The latest DOD SBIR solicitation carries some good news. DOD
is starting to get it. Four of the five solicitors advertise post
Phase 2 matching that will give more money to those projects that
can attract non-SBIR money. DOD thus is on a trajectory that started
with SDIO's (BMDO) doing that in 1992, followed by department-wide Fast
Track in 1996. Army says 1:1 match for only $100K in a pilot program.
Navy says 1:4 match for Navy acquisition money only. DARPA 1:1. SOCOM
(a tiny program) 1:4. These steps are a start and may grow into
something useful in a post Cold-War world. Because they convert SBIR
into an investment program, as was first intended in 1982, they will be
good for the high-tech small business community. Much
better than simple contract R&D which adds nothing to the small
business world. The credit for prodding the DOD into a more expansive
view of SBIR goes to SBIR policy overseer Jon Baron and the two
Clintonian Assistant Secretaries of Defense for Acquisition Paul
Kaminski and Jacques Gansler. Note that this does NOT add any SBIR
money to the pool; it merely invests it smarter.
Tom Donlan, [Barrons, Jun 7] says, Trustbusters say they are working to increase competition, but their usual method is to tilt the playing field in favor of less-competent competitors. In addition, government intervention often stifles the development of new competitors. Is SBIR doing the same in the name of fostering innovation? Deliberately or unwittingly accepting less innovative proposals from less entrepreneurial companies to keep the most disruptive innovation at bay? If you had a big innovation turned down and you saw NASA and the Army funding ordinary math modeling, what would you think of government's attitude toward innovation? If the government praises small commercial spin off from a few SBIR winners while resisting any economic analysis of the whole program, would you believe that it has any intention of fostering the most innovative or efficient competitors?
| BMDO picked 8 STTR Phase 1 winners in 8 companies out of a batch of 90 proposals with an average amount of $75K. Not many in a tiny program that is more mirage than program. Note the gap between a 9% acceptance rate for STTR and a 25% for SBIR. Why? The economics of proposing somehow changed? Too many universities having their proposing costs covered by government grants? With a small pot of money, the BMDO manager has little flexibility to do the most good. As a result, awards are few. If you have a really good BMDO STTR idea, save it for SBIR where BMDO has full flexibility to treat it right. | Evenings as Well Another counter-indicator that says SBIR is not solving a problem of any real capital shortage in small companies: the NASDAQ will start trading evenings as well to keep up with the demand for stock trade. Technology has not only obsoleted the trading floor (which no longer exists on the Australian exchange), it also obsoleted the factory mentality of 10-4 five days a week. |
Harvard, Princeton, and SBIR. What they have in common is a 12% selection rate. Princeton accepted a record-low 10.8% of the 14,874 high school seniors who applied for admission this fall. Harvard 11.3% of 18,160, the second-highest in its history. Still Harvard sends out 50,000 letters to promising high schoolers. [Business Week, June 7] Harvard's problem, unlike SBIR's is that a lot of the acceptances never show up. Could both universities and SBIR learn something about targeting their recruiting? Or are all junior pretty much alike while most SBIR proposal candidates never had any hope and can discover so for themselves? The DOD has made it a lot easier by making the topic writers available for phonecon and e-mail. Yes, they do call back.
| Contemplating such signs of military stress, many critics are only too happy to blame the commander-in-chief. From the outset of his first term, President Clinton has inspired little affection from soldiers and little respect from policy analysts specializing in national security. To be fair, however, the president has not been well served by the senior military leaders in the past decade. From the Chairman of the Joint Chiefs on down, the four satrs of the post-Colin-Powell era have been distinguished primarily by their single-minded determination to pepretuate the familiar: an Army based on heavy tanks, a Navy enamored with mammoth aircraft carriers, and an Air Force in the thrall of strategic bombing. ... Faced with any problem, the prevailing instinct in the upper echelons of the Pentagon, is to throw money at it. ...The American people need to abandon the fantasy that, as long as they allocate 3-4% of GDP per year to "support the troops", US military supremacy will be self-sustaining and perpetual. ... senior officers who fear change, lack imagination, and distrust their political masters. ... Without bothering to change the name, the architects of this experiment [a global 911 force] transformed the Department of defense into a department of Power Projection. They did so without obliging their military to retool itself for its nrew role and without advising American citizens of complications that might ensue. [A Bacevich, "Combat Unready", The New Republic, June 14] | The United States ... is definitely in a class of its own in the soft-power game. On that table, China, Russia and Japan, and even Western Europe, cannot hope to match the pile of chips the United States holds. People are risking death on the high seas to get into the United States, not China. There are not too many who want to go for an M.B.A. at Moscow University, or dress and dance like the Japanese. Sadly, fewer and fewer students want to learn French or German. English, the American-accented version, has become the world's language. This type of power--a culture that radiates outward and a market that draws inward--rests on pull not push; on acceptance not on conquest.... In this arena, all of them together--Europe, Japan, China, and Russia--cannot gang up on the United States as in an alliance of yesteryear. All their movie studios together could not break the hold of Hollywood. Nor could a consortium of their universities dethrone Harvard. [a German foreign policy expert quoted by Friedman in The Lexus and the Olive Tree] |
An SBIR Cakewalk
(May 28) Who could be against such a nice program? The House Small
Business subcommittee on SBIR (and other stuff) had a warm and fuzzy
hearing in which everyone agreed SBIR was working fine and needed no
fixing. An unusually articulate panel of company CEOs did well at
explaining how SBIR gave them money for good things which they turned
into better things. No one asked whether it would have happened anyway.
Why bother, at least SBIR does precious little harm to government
R&D at 2.5%.
The usual platitudes and statistics were aired.
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Stand By For Posturing. Since China learned a lot over the last decade about weapons, Congress will want to correct history and stop tech transfers. The pressure will be on with lots of posturing about the menace of tech transfer to our enemies and many government officials will turn cautious about foreign interest in SBIR technology. Since those officials get nothing from any foreign commerce, they have no strong reasons to take a global view. Some will do what they did in the Cold War era - downgrade SBIR proposals that involve foreign participation as investors, as workers, and as customers, and try to restrict foreign access.
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We have a bias toward action, jumping on crazy things, betting on incomplete management teams and incomplete technology because that's where we'll find the next Hotmail. A government SBIR manager? Don't be daft! Partner Steve Jurvetson of Draper Fisher Jurvetson, a VC firm. Draper's grandfather, a former Army general, opened the first West Coast VC firm in 1958. Since then the Army has lost whatever innovation spark the general had. At least in its SBIR.
Why Do We Need SBIR? Intel Corp. said Monday that it set up a $250M fund to invest in companies developing Internet applications for the computer-chip giant's new microprocessor technology. The new architecture, called IA-64, processes 64 bits of data at a time, rather than the 32 bits of earlier chips, and uses other design tricks to carry out multiple tasks at once. Santa Clara-based Intel plans to begin producing the first IA-64 processor, named Merced, in mid-2000. Intel said co-investors of the Intel 64 Fund are Compaq Computer Corp., Dell Computer Corp., Hewlett-Packard Co., Silicon Graphics Inc. and NEC Corp. Other investors include Bank of America Corp., Circuit City Stores, Ford Motor Co., General Electric Co., McKesson HBOC Inc., Reuters Group PLC, Sabre, SmithKline Beecham PLC, Sumitomo Corp., Sun America and Telmex. Such funds are used by Intel, and other high-tech giants such as Cisco Systems Inc. and Lucent Technologies Inc., to invest in companies that can make their products more useful. [Arizona Republic, May 11] Wanna bet the government ignores Intel's $250M and funds the same stuff anyway? And when the SBIR project is over, it will be too late to get into the market because the Intel grads will be in touch and already established.
What Now, Sir Expert? Most experts believe that without deep changes in both industry behavior and government policy, US microelectronics will be reduced to permanent, decisive inferiority within ten years. [MIT's Charles Ferguson, Harvard Business Review, 1988]
Who's Gonna Testify Companies scheduled to testify at the House SB Committee SBIR hearing May 25 have plenty of experience. Intelligent Automation (Rockville, MD) 59 awards, grown from 2 to 38 employees 1987-1998; Cree Research (Durham, NC) 17 awards, grown from 6 employees to a $700M market cap 1988-1999; ADA Technologies, (Engelwood, CO) 38 awards, grown from 3 to 36 employees 1986-1995; plus inexperienced Personal Improvement Computer Learning (Reston, VA) 1 award (Scheduled, Gradual Reduction for Smoking Cessation). Expect the usual love-in as the politicians and the beneficiaries fawn over each other.
What's DARPA SBIR Doing? DARPA has awarded 36 Phase 2s from its FY97 crop of Phase 1s to 36 different companies. No favorites. Most awards have some commercial sounding possibilities. Only two companies are the commercially dead kind that do useful plodding research. And none is in the top rank of Multiple Award Winners. DARPA is soliciting again in DOD's summer solicitation.
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| What SBIR Should Do! Little CoreTek (Burlington, MA) got $6M venture money five years after it started up with a BMDO SBIR. But not for the founding technology of an optical correlator. Instead, it will make photonic tuners from its MEM-TUNE variable wavelength filters and Tunable 1550nm VCSELs for the fiberoptic communication industry. The Laser Focus World May99 piece says it enables four times denser packing of transmission channels. Parviz Tayebati left an SBIR-supported job at Foster-Miller (the by-far champion SBIR getter) to start his own firm in space rented from another SBIR-supported firm that had more need of rent income than research from the space. BMDO, which loves to start go-getters, gave him three Phase 2s in successive years 95-97 but required co-investment as the technologies matured. Got energy, a new and potentially profitable idea, but no independent business history? Try BMDO SBIR! | As a believer in the pursuit of self-interest in a competitive capitalist system, I can't blame a businessman who goes to Washington and tries to get special privileges for his company. He has been hired by the stockholders to make as much money for them as he can within the rules of the game. And if the rules of the game are that you go to Washington to get a special privilege, I can't blame him for doing that. Blame the rest of us for being so foolish as to let him get away with it. [Milton Friedman, CATO Policy Report, M/A99] Sound familiar? For "special privilege" substitute SBIR; for "the rest of us" substitute "government agency". |
250
Navy Winners
(May 12) See the Navy list of
Phase 1 SBIR winners from last winter's solicitation. Abstracts
coming sometime on the DOD Search Site. 250 winners. Company names
only, no titles. Some Navy favorites appear as usual: Foster-Miller 10
awards, Technology Service 7, Digital Systems Resources 6, Creare 6.
Over the years the multiple award winners make a lot of noise about why
their work is so worthy. Fine! Now let the Navy explain how these
companies are giving the Navy a competitive return on investment.
Republicans Love Immigration
(Aug 23) John McCain plans to introduce another bill for 175,000 visas
to let US companies hire yet highly skilled foreign workers. The frenzy
does what high-tech companies want - brain drain from other countries.
Earlier this month, Demo Zoe Lofgren (Silicon Valley) introduced a bill
to extend the stay to five years. Phil Gramm and (Rep) David Dreier
(Southern California) introduced bills to up the intake to 200,000
annually. Alongside this frenzy of filing job vacancies, subsidy
programs like SBIR still use a rationale of job creation. So, SBIR
pretends to create jobs that have no takers and the immigration limit
rises to accommodate it. Actually, SBIR adds no new jobs anyway since
it just diverts money from one pocket to another within the federal
R&D programs, and only the small business politicians pretend to
believe the job creation mantra. The California Republicans find
themselves in a particular intellectual bind since many Californians
grouse about the evils of immigrants while enjoying the fruits of
black-market service labor.
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NIMBBY - Not in My British Back Yard The Wellcome Trust, the world's wealthiest research charity, cannot build a $160M science park in the countryside near Cambridge England yesterday lost its controversial application Wellcome's head of genomics called the rejection a "national disaster" and that Britain risked losing its leading role in the mapping and decoding of the genes that provide the human blueprint. Wellcome saw its plans as a test of the Government's stated commitment to encourage the development of Britain's science research centres. [The Times, Aug 19] Cambridge pretends it is growing to rival Silicon Valley but national politics still controls local decisions despite the devolution moves for Scotland and Wales.
Young Triangle companies raised far more outside funding than ever in the latest quarter. Simply put, it was a blowout quarter. The $135M raised by 19 privately owned Triangle businesses in the second quarter exceeds the amount raised in all of 1997 and is more than double the amount raised in the first three months of this year, according to data compiled by the accounting firm Pricewaterhouse Coopers. [Raleigh News & Observer, Aug 18] What kind of companies? SciQuest.com sells scientific products over the Internet; Protein Delivery, a biotechnology company; Koz.com, which sells its "community publishing systems" to the online versions of newspapers across the country;. BuildNet, which is developing an electronic commerce service that will link home builders and suppliers; Argomed, medical-devices; awaiting FDA approval of a device that would be used in a low-cost, minimally invasive procedure for treating an enlarged prostate; KV Labs, a network management software company; Orolgic, semiconductor company which expects to have a prototype microchip to show to prospective customers such as Cisco Systems and Nortel Networks; Touch Research, assembles networks of doctors to take part in clinical trials for drug companies; ReadyCom handheld wireless device to let people retrieve voice-mail messages as well as make limited calls.
Says a proposal, Commercialization Strategy. XYZ Inc is extremely interested in developing a commercially viable [device] in order to offer its customers enhanced device performance and manufacturability. The potential of developing an analog to [competing device] is a valuable and useful technology for a variety of device applications including [agency interest]. Complete motherhood! If you were an agency SBIR decider, what would think of this company's attitude toward commercializing anything? NO, your objective is to differentiate yourself from your competition, not to join it.
Iridium's Downfall: The Marketing Took A Back Seat to Science; Motorola and Partners Spent Billions in Satellite Links For a Phone Few Wanted. [Wall Street Journal, Aug 18] Although SBIR wastes only a few million per idea on unmarketable ideas, the principle is the same. The agencies spend on their knowledge needs and the company fails or becomes a ward of the government. And still that is what the SBTC wants for the future of SBIR. Oh no, of course, they don't frame it that way. They appeal to the motherhood that science begets prosperity while avoiding the niggling details on which science and why. The idea of a market partner as a validator, as practiced by BMDO and DOD's Fast Track, cuts out the science-is-fun projects. If you have a market partner, go to those places with the project. They understand.
Have-Not States Have Plenty Pity those have-not states for not getting SBIR? Save it. They are already getting more federal dollars per tax dollar paid than the other states. New Mexico $1.94, West Virginia $1.69, Mississippi, North Dakota, Montana (recognize them from Congressional SBIR hearings?) high on the list. Supported by New Jersey at $0.68. [Source: Tax Foundation, , Aug 18]
A Little Politics Can't Hurt. To combat their poor performance, high-tech leaders in Chicago recently established their own political action committee, called Tecpromote, to focus attention on Illinois technology companies. Tom Thornton, who, along with Mark Glennon, started the political action committee (PAC) in July. Thornton, who also is president of the Illinois Coalition, a non-profit group that promotes development of the state's high-tech economy, said while there are many non-profit technology organizations dealing with a variety of issues surrounding the industry, those organizations are prohibited by government campaign finance laws from contributing to political candidates. Tecpromote, an acronym for technology, entrepreneurship and capital formation promotions, will be "focused on issues that impact technology companies in Illinois," said Thornton. "We will be contributing to federal and state candidates who focus on Illinois technology issues," said Glennon, who also founded the Illinois Venture Capital Conference that sponsors an annual gathering of early-stage companies seeking investors. Those issues include sharing federal funding of research; protecting intellectual property rights; prohibiting shareholders from suing unsuccessful start-up companies; creating tax incentives for employers to train IT workers; and the minimizing of e-commerce regulations and taxes. [Chicago Tribune, Aug 17]
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NVCA Speaks, Boosters Howl. Who might have a better view of how SBIR could become an smart investor than The National Venture Capital Association? "Don't touch our SBIR," howl the advocates. NVCA wrote the House Science Committee to recommend some SBIR improvements in what it calls a successful program: bigger Phase 1 awards, business plans for Phase 2 proposals, accountability for multiple Phase 2 winners, more DOD-style Fast Track, and the controversial studying of some radical ideas like limits of total SBIR for any company and direct Phase 2s. NVCA takes the view that investment should produce investment-like results. The advocates' umbrage derives from their disdain for treating SBIR as an economic program; they prefer to keep their dreamy-eyed rationalization of long term (and therefore unprovable) benefits of doing run-of-the-mill research. A broadcast e-mail alert from SBTC urges everyone to the the Small Business Committee to object to NVCA's proposals without ever saying why. Of course, write the SB Committees which have no responsibility for smart investment of R&D dollars, only service to small business interests. House Science takes a different view of invasions of its science-turf by set-asides for worthy other goals. 2% here and 2% there plus earmarks for home institutions, and pretty soon science becomes a cash cow for political payoffs. NVCA's proposals make a lot of sense for an economic SBIR.
| Software Takeover. The Business Software Alliance says software will overtake autos as the largest manufacturing segment of the US economy this year. Software sales were $140B and employed 800,000 people with a $13B trade surplus. Not long ago, just Cisco had a higher market cap than the big three automakers combined. Thus confirms Nelson's dictum that "Government needs software but software doesn't need government." Never mind, the federal agencies will still spend SBIR on risk-free software projects that belong in procurement of services and the companies will boast of their success. [facts from IEEE Spectrum, Aug 99] | More Info-Tech Research. Congress seems ready to climb on the bandwagon and pony up more info-tech research money. HR 2086 wants to double current funding to $4.8 billion over the next five years for IT research at the six agencies under the Science Committee's jurisdiction. That leaves out all the info-tech stuff at DOD. Now if only the Republicans can talk about this in a way that doesn't have them talking out of both sides of their mouths at the same time about shrinking government while increasing government's role in an already booming sector. Ah well, when it comes to passing out money, party and philosophy take a back seat to vote-buying. Wanna bet there are a lot of earmarks to home universities to help lubricate the passage? |
The Endless Frontier The federal government's share of R&D support declined to 30%, the lowest percentage on record. ... Still, 988,000 scientists and engineers were engaged in US R&D work, as against 808,000 in 1985... Total UD R&D spending hit $220B another record-setter ... industry performs 75% of R&D and 85% of that is privately funded ... [Teddi Lauren, editor Photonics Spectra, Aug 99] If R&D is a national health thermometer, we must be doing well, with private industry carrying the main load. The end of the Cold War ended the myth that government has to carry R&D. The upside for new-tech is that there are lots of people interested in new-tech and you don't need a government handout to survive if you have a competitive technology
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Why is New Hampshire #1 and Vermont #5 while Montana is #49 and Wyoming #50 in high-tech jobs as a percentage of all jobs? Aren't they all empty, have-not states that need help from SBIR? Is there a flaw in the logic or assumptions of the Western SBIR alliance? Stats from the Progressive Policy Institute.
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Missiles Are Coming. Forecasters edge ever closer to a rain if missiles from rogue states and even possibly a few "civilized" states. Just this weekend the lead story in The Economist (July 31) and an open briefing by the head of DIA to an international conference of futurists shout "it's coming". With Republicans holding Congress, the likely response is to spend more money at BMDO (spending money is what legislatures do best). A likely further consequence is that BMDO's SBIR will continue to rise with perhaps a conversion from the devotion to new technology through the private markets to more conventional military spending on support services. The SBIR manager at BMDO will have a hard time holding back the screaming hungry managers of ordinary BMDO programs from raiding the SBIR treasury to fund stuff that has no earthly future beyond the last SBIR dollar spent on it. If you are proposing Phase 2s particularly to BMDO you will do well to help the SBIR manager project the story that your dual-use technology will indeed progress through the private markets to produce technology that the developers four years from now can take advantage of. |
Mentoring
for Have-Nots Two Senators, Levin and Kerry, neither from a classic have-not state, are floating a bill (S1435) to have SBIR winners mentor small businesses in "low participation areas" - any geographical area that gets disproportionately few SBIRs (disproportionate to what?) from an annual pot of $1M at the SBA. "One or more" awards would be made to administer the program to organizations that "represent small business concerns participating in SBIR or STTR programs". In other words SBA gets $1M, keeps 10-20% for overhead, passes the rest to an "organization" which keeps 10-20% for overhead and hands out the rest to SBIR winners to help "student" businesses. The $1M would have to be appropriated annually, not come from the SBIR set-aside. So far, no earmarks have been inserted for any state or any mentoring organization. Stand by, though, for politics. Perhaps, the have-many companies in Kerry's Massachusetts will help the have-not companies in Levin's Michigan in what could be seen as a slap or a handout for Michigan's aggressive MERRA which has been helping potential SBIR companies for 15 years. Such a fund adds dinky money to SBIR for the handholding that have-nots want without invading the set-aside percentage. And it appeals to have-not politicians' sense of "fairness" to their constituents. They feed the myth that a little government subsidy to R&D companies will build a new Silicon Valley almost anywhere. What's more likely is that it subsidizes life-style companies in life-style places which have little prospect of economic multiplication of the subsidy. |
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A Danish consultant observed about the American government attitude toward globalization that only 7% of Senators have a passport.
No Newt Means Less Science. Without Newt Gingrich's plan for more government funded science, the politics are eating science funding away to funbd other priorities, like veteran's medical. NASA science faces $1B cut; NSF $260M below President's request, especially in info-tech. The idea that government is the cutting edge of sci-tech has been eroded by the spectacular business success of high-tech firms and by the anti-government forces within the Republican Party. [facts from Wall Street Journal, Jul 30] Yes, if science funding drops, SBIR will drop automatically with it.
Fusion SBIR Companies Rejoice.
(Jul 29) The House paid off General Atomic and Princeton
University by adding $250M of fusion research to the Energy Dept. Plus
an Illinois lab in the Speaker's district got $18M. But SBIR will get
2.5% of that money although not necessarily in fusion awards that have
little commercial value. Oh sure, the proposers promise the sun but it
is a negligible chance of success multiplied by a monumental payoff if
it works. That becomes a bad bet for an SBIR program intent on
commercializing within some reasonable time. Unless you love any
R&D with any promise of any future. Odds are that some small fusion
labs will get the SBIR money. [facts from Wall Street Journal, July 28]
Now if the Republican "conservatives" can just convert one dollar of
surplus to one dollar of tax cut plus one dollar of defense plus one
dollar of payoffs. Such arithmetic worked for Reagan!
Who Does How Much US R&D?Preliminary 1998 estimates show industry R&D spending increased in real terms 7.7% over 1997 to $143.7B, or 65.1% of the total. Federal support increased 0.8 percent to $66.6B, for a record low of 30.2% of the total. "Nearly all ($140.8B) of the industry R&D funds will be devoted to R&D performed by industry itself, with the remainder directed toward academic R&D ($1.8B) and R&D performed by other nonprofit organizations ($1.0B)," Payson said. Industry, including industry-administered federally funded research and development centers (FFRDCs), is expected to perform 75.1 percent of the nation's total R&D in 1998. Of this, 85% will come from industry's own funds; federal funding will account for the remaining 15% (down from an all-time high of 32% in 1987). Most R&D spending (61.8 %, or $136.4 B) is for development. Applied research accounts for 22.6%, or $49.8; basic research for 15.6 %, or $34.4 B. NSF Report on national R&D]
If SBIR wants something useful and appropriate for government to do, it could focus on high-tech incubators because, The most difficult part of starting a small business is, of course, starting. But a growing network of business ``incubators'' has sprung up to provide a warm and cozy place for infant firms to gain strength and face the world. Incubators give entrepreneurs a place to set up shop, usually for below-market rent, and get free or discount access to a variety of services. Often there is a stringent review process for admission to an incubator, and a one- to four-year deadline by which the company must graduate and operate on its own. A recent study showed that 87 percent of incubator graduates survive for five or more years, while nationally only about half of all small businesses make it to four years. This success rate has led more universities, municipalities and even private companies to get into the business of helping others get into business. there are nearly 600 incubators in the country, compared with just 12 in 1980. [Washington Post] If SBIR is for infancy, and not for regular R&D, then incubator companies would be a good place to find investments. On the other hand, if as is currently practiced in many agencies SBIR is for regular R&D contracting, incubators are irrelevant.
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Soaring high-tech investment has significantly increased the level of sustainable growth by changing how businesses operate and boosting productivity. [Business Week, July 12] So, what is government to do when there is nothing that needs doing? Continue any ongoing programs regardless of their present irrelevancy.
It happens all the time. A scientist seeking to commercialize a promising laboratory discovery or technological innovation finds he lacks the financing, connections and business savvy to get his invention to the marketplace and his company out of the start-up phase. Providing crucial support and guidance for fledgling high-tech companies is the mission of Emerging Technology Partners (ETP), a private, for-profit venture management firm based in Birmingham. "There's a bright future for high-tech growth in Birmingham," declares ETP CEO G. Michael Alder. "With UAB taking the lead, the quality of technology being generated here is tremendous. But the infrastructure to help translate that into new companies and economic growth has lagged a bit behind. ... ETP was capitalized with $4.6 million over four years. Of that total, 85% comes from the Economic Development Partnership of Alabama (EDPA), a privately-funded group that works in conjunction with state and local economic development organizations to market Alabama and attract new industry. The remaining 15% of ETP's support comes equally from UAB, the University of Alabama and Auburn University. The University of South Alabama and the University of Alabama at Huntsville are considering providing additional support, according to Alder. ... the biggest problem in nurturing Birmingham's high-tech cluster remains attracting sufficient venture capital. While the area's venture capital pool has grown to about $100 million, more is needed to ensure that the potential that exists here has every opportunity to develop, he says. Toward that end, ETP will soon begin operating its own venture capital fund, Paradigm Venture Partners. Having already secured $6 million of a planned $10 million capitalization, Paradigm's investment decisions will be made by committee, with ETP managing day-to-day operations. With 100% of profits to be distributed to investors, Alder hopes to generate a 35%-40% annual return. [Mark Kelly, Birmingham Business Journal, July 19] All good news. The private sector is doing what SBIR was set up to do in the absence of such activity. Thus SBIR can close down. Oh, right! A government handout program will stop when the need disappears. Fat chance. The beneficiaries will find a way to argue for even more government subsidy.
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When the government judges the commercial potential of an SBIR proposal, it should start taking into account how well the company is positioning itself for e-commerce. Forrester predicts a rise from today's $8B to $108B by 2003. The Economist opines that: For evidence of how far most companies will have to go in developing their Internet strategies, look no further than their corporate websites. A few pioneers - such as Charles Schwab and Dell - have successfully transferred many of their core activities to the web, and some others may be trying their hand at a few web transactions, with an eye on developing their site an an extra distribution channel later. But more often than not, those websites are stodgily designed billboards, known in the business as "brochureware", which do little more than provide customers and suppliers with some fairly basic information about the company and its products. Most managers know perfectly well they will have to do better. [The Economist, A Survey of Business and the Internet, June 26]
The reaper did what the Republicans could not - dislodge George Brown from his seat on the House Science Committee. Brown, the oldest member of the House of Representatives, died at age 79.
The Senate is considering the idea of forcing each SBIR agency to hand over $4000 to the SBA for every award, Phase 1 and Phase 2 to help small businesses in SBIR competition. SBA would pick someone to administer this technical assistance program. Not the best idea I ever heard for spending federal R&D money. It is forcing down the throats of the federal agencies a non R&D handout to small business that the agencies rejected when given such a chance in the 1992 legislation. It was Wellstone's idea in 1992 and sounds like he hasn't given up trying to get a break for the Minnesota firm he has in mind for the contract. Picture, if you can, the SBA's teaching companies how to be competitive R&D companies. It's robbing Peter to pay the mob outside the city gates who haven't even asked for a handout. It's SBA's raiding the agencies for operating money; if Congress wants to increase SBA's appropriation do so directly. What should an agency do to keep its R&D money? Fewer Phase 1s for more money which cuts the number of new ideas explored from new companies. BMDO, for example, which limits Phase 1 to about $65K could move to $100K for a third fewer awards and thus retain about $2.5M that would otherwise go to SBA for this social program. Where is the evidence that SBIR is getting too few new companies proposing? If an agency wants new ideas, it has only to advertise so buy what it says and what it does.
| Adapt or Die says Clayton Christensen in The Innovator's Dilemma. He and George Gilder name five industries in trouble from disruptive innovation - the kind SBIR should be fostering if it is to have any impact. Telecom optical nets will wipe packet switching and AT&T. Financial Services e-business is on the rampage. Education corporate internet teaching will wipe B-schools. Retailing e-commerce wipes Sears. Health Care (a favorite industry for SBIR proposers to misinterpret) nurses with diagnostic machines and a computer challenge doctors. Microprocessors cheap chips threaten Intel. [Business Week, July 26] | If you're proposing SBIR to a commercially aware agency (some actually are), you want to project a vision of disruptive innovation as your excuse for government support. With the right vision you maybe able to leapfrog conventional economic arguments that would fail for a drop-in substitute with a minor competitive advantage. (Oh, your competitive advantage is probably less than you think and you are either misstating it or ignoring it.) |
SBIR Stocks Rocketing
(Jul 16) A few SBIR-winning firms have seen their stocks rocket onto
high ground. SDL is 15 times its low at a $2B market cap. American
Xtal which has a germanium mining deal with China and two new
strong buy recommendations is six times its low of last September. ATMI
is three times its September low on a brightening picture for
the semiconductor industry that it serves. Note that ATMI is the only
public firm in the top 25 SBIR winners named by GAO. Kopin the
2.5 times its low despite still never making a profit after seven years
as a public firm even though its technology wins attaboys from the
techies. Ibis is five times its low as revenues have recently
shot up. Cree Researchis in the stratosphere at a $1B+ market
cap and splitting its shares again. Embrex, the egg
innoculator, has doubled in the past two months. SatCon has
doubled in two months on improving news of revenues and products. Ortel
has doubled in two months. Emcore is four times its
September low. AstroPower and ViaSat have doubled. In
contrast, Irvine Sensors and Spire, two big SBIR users
are in the same going-nowhere mode they have been in for years. If the
government would use a hypothetical return calculation on SBIR
investment of an equity value of just these public companies, it could
claim that it has sensibly managed SBIR as pseudo-VC fund instead of a
mere handout. Fat chance - neither the agencies nor the SBA thinks that
way.
Fast Track Update DOD has updated its Fast Track report. Phase 2 awards went to 105 of 113 qualified proposers and have brought in $39M to match DOD's $82M. Most (70%) go to first time proposers who get a sweet 4:1 match. A few double and triple winners, plus one eight time winner Digital Systems Resources all partnered by Navy mainline programs. Smells like DSR and the Navy have found a nice arrangement for R&D that taps the SBIR pot for what the Navy might well have done anyway. Maybe it needs a reality check on the degree of technical innovation.
Since It Ain't Broke
(Jul 14) The House SB Committee praised SBIR in its findings and
introduced HR2392 to continue SBIR until 2007 while making a couple of
minor adjustments reporting, third phase assistance, and rights to data
issues. Progress on H.R. 2392 can be tracked on the Thomas Legislative Information by
searching on the bill number. No added money, no shift from the 1992
commercialization emphasis, no admin money, no regional earmarks, no
penalties for multi-winners, no big changes of any kind. It is also
silent on whether SBIR has increased small business participation n
federal R&D and whether any such increase helped federal R&D -
as was one of the prime objectives in 1982. Scuttlebutt has it that the
Senate will do the same simple reauthorization.
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| A Congressional View of SBIR While the smiling and platitudes gush from the Small Business Committees, the House Science Committee has a different view - SBIR has to be evaluated and produce an economic return. Naturally, Science wants accountability since the science programs pay the SBIR bill while Small Business committees get a free ride to hand out other people's money. The minority ranking member George Brown (CA) and the staff counsel Jim Turner published an article in Issues in Science and Technology, Summer 99, which starts with the observation that the program's growth has been largely at the expense of other federal R&D support for small business - shunting. And most accusingly most SBIR awards aimed at the commercial marketplace do not lead to major commercial successes and most SBIR wards aimed at government needs do not result in federal procurement contracts. Now that's not as serious as it sounds. VCs don't expect a majority of their investments to pan out well either, but they do expect the few big ones to pay off BIG TIME. SBIR cannot make that claim. The authors' want SBIR to be re-cast to produce winners or to be ended as a failed experiment. They do base their claims on an observation that the world of small business has changed dramatically since 1982 and that the linear model of development never applied anyway. They offer several program changes that the Small Business Committee will probably ignore as the present beneficiaries howl for continuation of a "successful" program. Unfortunately, Brown and Turner focussed their fire on the companies' failure to commercialize, a visible target, but ignored the real culprit - the federal agencies who pass out the awards. | NEW ENTREPRENEURS appear vital to healthy economic growth. A pioneering 10-country study, led by researchers at Babson College and London Business School, finds that "variation in rates in entrepreneurship may account for as much as one-third of the variation in economic growth." Among the Group of Seven economies and three others, the proportion of adults involved in efforts to start businesses is highest in the U.S. (8.4%), Canada (6.8%) and Israel (5.4%), the report says. That same measure lags far behind in France (1.8%), Japan (1.6%) and Finland (1.4%). Indeed, Finland relies on one big telecom company, Nokia Corp., for more than one-third of its domestic growth. A further finding: "Entrepreneurial societies have and accept higher levels of income disparity." An estimated 40% of would-be entrepreneurs actually launch their businesses within a year. [Wall Street Journal, June 24] |
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The Politics of Positive
Speaking Writing an SBIR Proposal (or any other persuasive
document)? Take some advice from the Republican advisors (even though
the hard core Repubs don't want to). Capture voter attention by
communicating a shared value. "After years of hard work, the
independence that comes from financial security ought to be the one
thing you can count on."
US R&D Report. The dominance of the United States as a source of technology for other economies is declining, with reduced shares in practically every foreign market. Moreover, technology acquired by U.S. domestic companies through imports has more than tripled over the last two decades. This trend is symptomatic of the relentless globalization of R&D capability. ... Unfortunately, the current economic structure of the U.S. economy consists of a small "high-tech" sector that develops new technology, a larger sector that attempts to compete largely by absorbing technology, and the remainder that does little of either. This situation will be increasingly inadequate to sustain desirable rates of growth. ... A commonly used indicator of the amount of R&D undertaken by a high-tech industry is its R&D intensity (R&D-to-sales ratio). In the United States, relatively few industries have the high R&D-to-sales ratios (in the 8-12 percent range) that will allow continued world class innovation. These industries together only account for about 7 percent of GDP. At the same time, the composition of U.S. private-sector R&D is shifting toward shorter-term objectives, at the expense of next-generation research. [Greg Tassey (NIST Economist), "R&D Trends in the U.S. Economy: Strategies and Policy Implications, June 1999] Tassey's report does have a high platitude content with much genuflection to conventional wisdom and a bias to more R&D spending by both private and public money. Still, it should be required reading for techno-economic policy wonks. Tassey uses one of the SBIR assumptions - a false-choice between next-generation research and short-term development. SBIR can straddle the gap when intelligently directed. There are many chances, like Theseus Logic's Null Convention Logic, to get a next generation technology started and expect early investment within two years of Phase 1 SBIR. But if the government never tries, then the false-choicers will dominate every discussion and every agency will have to defend itself against a charge of ignoring the future by investing in short-range objectives for its SBIR. Tassey does cite Congressman George Brown "[We have] a clumsy and unsophisticated set of tools for evaluating the best of human innovation and thinking. We also need to be conducting outcomes assessments for our science and engineering activities and we need to collect the data needed to make these assessments," which is a message to SBIR as well. If you are going to propose SBIR on the basis of commercial potential, you want a story that sounds like the story that Autonomous Technologies had (but didn't yet know it in 1992) on laser eye surgery. But if the government is smart, it won't let you just blather on about your dreams, it will look for third party validation in the form of investment. If, however, the government doesn't want to pick the most likely winners, then any story will do for an agency following Roscoe Bartlett's line of using SBIR to fund research. subsidies prevent market forces from weeding out less adept farmers [John Carey, Business Week, Jun 28] What do SBIR subsidies do for/to high tech business? How might the government assure that the subsidy does NOT encourage the inept entrepreneur from wasting SBIR money just because a federal agency wants a non-market product or service?
Welcome to small company status. The Russell 2000 index of smaller stocks will now include W R Grace the former giant chemical maker. Political historians will remember Grace's chairman's preaching to the government from his Reagan-appointed Grace Commission about waste, fraud, and abuse. It was a classic case of waste being someone else's program. It wanted to downsize government in accord with the prevailing Conservative ideology by eliminating programs that did not help American business. Less business tax, less intrusive regulation, no unfunded mandates, no SBA, no Energy Department (which actually wouldn't be such a horrible idea), the whole Conservative litany. Nevertheless, in the middle of such talk, Reagan signed the SBIR law in 1982. >DOD Gets It Tom Donlan, [Barrons, Jun 7] says, Trustbusters say they are working to increase competition, but their usual method is to tilt the playing field in favor of less-competent competitors. In addition, government intervention often stifles the development of new competitors. Is SBIR doing the same in the name of fostering innovation? Deliberately or unwittingly accepting less innovative proposals from less entrepreneurial companies to keep the most disruptive innovation at bay? If you had a big innovation turned down and you saw NASA and the Army funding ordinary math modeling, what would you think of government's attitude toward innovation? If the government praises small commercial spin off from a few SBIR winners while resisting any economic analysis of the whole program, would you believe that it has any intention of fostering the most innovative or efficient competitors?
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Harvard, Princeton, and SBIR. What they have in common is a 12% selection rate. Princeton accepted a record-low 10.8% of the 14,874 high school seniors who applied for admission this fall. Harvard 11.3% of 18,160, the second-highest in its history. Still Harvard sends out 50,000 letters to promising high schoolers. [Business Week, June 7] Harvard's problem, unlike SBIR's is that a lot of the acceptances never show up. Could both universities and SBIR learn something about targeting their recruiting? Or are all junior pretty much alike while most SBIR proposal candidates never had any hope and can discover so for themselves? The DOD has made it a lot easier by making the topic writers available for phonecon and e-mail. Yes, they do call back.
| Contemplating such signs of military stress, many critics are only too happy to blame the commander-in-chief. From the outset of his first term, President Clinton has inspired little affection from soldiers and little respect from policy analysts specializing in national security. To be fair, however, the president has not been well served by the senior military leaders in the past decade. From the Chairman of the Joint Chiefs on down, the four satrs of the post-Colin-Powell era have been distinguished primarily by their single-minded determination to pepretuate the familiar: an Army based on heavy tanks, a Navy enamored with mammoth aircraft carriers, and an Air Force in the thrall of strategic bombing. ... Faced with any problem, the prevailing instinct in the upper echelons of the Pentagon, is to throw money at it. ...The American people need to abandon the fantasy that, as long as they allocate 3-4% of GDP per year to "support the troops", US military supremacy will be self-sustaining and perpetual. ... senior officers who fear change, lack imagination, and distrust their political masters. ... Without bothering to change the name, the architects of this experiment [a global 911 force] transformed the Department of defense into a department of Power Projection. They did so without obliging their military to retool itself for its nrew role and without advising American citizens of complications that might ensue. [A Bacevich, "Combat Unready", The New Republic, June 14] | The United States ... is definitely in a class of its own in the soft-power game. On that table, China, Russia and Japan, and even Western Europe, cannot hope to match the pile of chips the United States holds. People are risking death on the high seas to get into the United States, not China. There are not too many who want to go for an M.B.A. at Moscow University, or dress and dance like the Japanese. Sadly, fewer and fewer students want to learn French or German. English, the American-accented version, has become the world's language. This type of power--a culture that radiates outward and a market that draws inward--rests on pull not push; on acceptance not on conquest.... In this arena, all of them together--Europe, Japan, China, and Russia--cannot gang up on the United States as in an alliance of yesteryear. All their movie studios together could not break the hold of Hollywood. Nor could a consortium of their universities dethrone Harvard. [a German foreign policy expert quoted by Friedman in The Lexus and the Olive Tree] |
An SBIR Cakewalk
(May 28) Who could be against such a nice program? The House Small
Business subcommittee on SBIR (and other stuff) had a warm and fuzzy
hearing in which everyone agreed SBIR was working fine and needed no
fixing. An unusually articulate panel of company CEOs did well at
explaining how SBIR gave them money for good things which they turned
into better things. No one asked whether it would have happened anyway.
Why bother, at least SBIR does precious little harm to government
R&D at 2.5%.
The usual platitudes and statistics were aired.
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Even from TechNet's own myopic viewpoint, a general hike in federal R&D spending looks like a bad idea. Economic relationships aren't as simple as they first appear. It's true, of course, that if you subsidize something you'll get more of it. The question in this case is what "it" is. Research isn't a product but a process with several components. What do R&D subsidies produce more of? Austan Goolsbee, an economist at the University of Chicago Business School, has taken a careful look at that question. Analyzing the effects of federal R&D spending from 1968 to 1994, he found that most of the money went not to more inventive activity (an increase in "quantity") but to higher salaries for scientists and engineers. REGARDLESS OF WHO GETS the government money directly, the result is greater competition for employees and, thus, higher salaries throughout the field. That's bad for anyone who doesn't have Uncle Sam footing the bill. "Government R&D directly crowds out private inventive activity," writes Goolsbee. Goolsbee acknowledges that R&D subsidies can encourage more people to pursue scientific careers, with eventual benefits to the innovative process. But, he suggests, increasing everyone's salary is an awfully roundabout way to accomplish that goal. That R&D subsidies might make life harder for high tech companies is counterintuitive. But the pattern is well established: A similar effect holds true for farmland, which goes up in price to reflect agricultural subsidies; college tuition, which tends to rise with federal student aid; and commercial and residential real estate, whose prices fluctuate with the tax code. And the law of unintended consequences applies even in Silicon Valley. [Virginia Postrel edits Reason magazine and the author of The Future and Its Enemies, Forbes ASAP, May 31] |
A
FRIEND RECENTLY GUSHED TO ME about his great new idea for an
innovative and useful e-commerce tool. He told me he needed to get
funding
quickly. "I'm not concerned about the competition, yet. I'm worried
about funding. I've got to get capital before something happens to the
stock market and investors slam their wallets shut."... A double whammy
from a recession and a market correction will no doubt cause
significant pain for capital-hungry high tech startups. Venture
investors will "suffer" through a few years of sub-triple-digit returns
and be forced to take a harder look at fundamentals: growth prospects,
profits, management and industry experience, defensibility, and
competition. But the overall effects will be less onerous than many
suspect. Here's why: First, good venture capitalists will continue to fund good companies. Most established VC firms have stocked their coffers fuller than ever before. According to PricewaterhouseCoopers, the capital inflow into VC funds rose by 48% in 1998, totaling a record $17.3 billion. Second, during an economic downturn, many would-be entrepreneurs will be spurred into action. In a recession, big high tech companies and struggling startups alike will lay off workers to cut costs. Not all of these people will start companies but many will, creating new technologies that will help revive a struggling economy. Third, experienced VCs are long-term investors. .. solid VCs, the ones that most startups seek as financial backers, know that they make investments for the long haul. They don't get overly excited by short-term booms. And they don't cry over temporary busts. Fourth, investors measure their opportunities against other possibilities. So even if venture funds produce only modest returns, they still may be significantly more attractive than those safe, conservative alternatives. So a market downturn won't be all doom and gloom. Innovative startups will continue to fuel economic growth. Good ideas won't stop because capital becomes scarcer: The best startups will get the funding they need to get their products to market. Bessemer Venture Partners' Ravi Mhatre says, "Best-of-class companies are great opportunities because of their potential for unbelievable growth in untapped markets. It's always worth investing in those deals." [Geoff Baum, "Never Mind the Bubble", Forbes ASAP, May 31] |
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| Oh, they don't mention SBIR directly. But they undercut the claimed need for SBIR by saying there is no problem that SBIR needs to fix. Postrel and Baum say that government help for start-ups is either unnecessary or counter-productive. Baum sees no capital shortage and Postrel sees no gain but higher scientists' wages. Never mind, the political fix is in. Just hear the fawning at any committee hearing. | ||||
Stand By For Posturing. Since China learned a lot over the last decade about weapons, Congress will want to correct history and stop tech transfers. The pressure will be on with lots of posturing about the menace of tech transfer to our enemies and many government officials will turn cautious about foreign interest in SBIR technology. Since those officials get nothing from any foreign commerce, they have no strong reasons to take a global view. Some will do what they did in the Cold War era - downgrade SBIR proposals that involve foreign participation as investors, as workers, and as customers, and try to restrict foreign access.
| Central to Hayek's theory was his belief that there is no way a handful of bureaucrats can possibly know how to make intelligent spending and investment decisions. Why not? Bureaucracy lacks the deep knowledge that can come only from constant trial and error by millions of individuals over decades and centuries. To Hayek, as to Adam Smith, decentralized, competitive markets were infinitely more suited to collecting and disseminating useful information than the most powerful computers could ever be. For a political party, no matter how well-intentioned, to think it could order things better than the market was sheer hubris. How can a bureaucracy know how to price chickens, wheat, highways, schools, water, bonds and anything else better than the millions of self-interested human beings who trade daily in these items? Hayek's unambiguous answer: It can't. Could Soviet planners have created a Microsoft, Toyota or Intel, not to mention Disney's Mickey Mouse? Could anyone have planned the development of such an institution as the high-yield credit market, crucial for financing entrepreneurs and their innovations and creating jobs? [Reuven Brenner, Forbes, May 31] | SOUTHERN CALIFORNIA EDISON, meet Amazon.com. Somewhere in America, a lump of coal is burned every time a book is ordered on-line. The current fuel-economy rating: about 1 pound of coal to create, package, store and move 2 megabytes of data. The digital age, it turns out, is very energy-intensive. The Internet may someday save us bricks, mortar and catalog paper, but it is burning up an awful lot of fossil fuel in the process. Under the PC's hood, demand for horsepower doubles every couple of years. Yes, today's microprocessors are much more efficient than their forerunners at turning electricity into computations. But total demand for digital power is rising far faster than bit efficiencies are. We are using more chips-and bigger ones-and crunching more numbers. The bottom line: Taken all together, chips are running hotter, fans are whirring faster, and the power consumption of our disk drives and screens is rising. For the old thermoelectrical power complex, widely thought to be in senescent decline the implications are staggering. About half of the trillion-dollar infrastructure of today's electric power grid exists to serve just two century-old technologies-the lightbulb and the electric motor. ... Your typical PC and its peripherals require about 1,000 watts of power. An IntelliQuest study reports that the average Internet user is on-line 12 hours a week. (Most data relate to home users; business usage is very hard to pin down, but almost certainly is higher.) That kind of usage implies about 1,000 kilowatt-hours of electrical consumption in a year. ["Dig more coal-the PCs are coming",Peter Huber and Mark P. Mills, Forbes, May31] Want to convince those agencies who care that your technology has a grand sweep? Think like Huber and Mills. Don't just argue a 30% performance increase in some present paradigm. That's too static. |
We have a bias toward action, jumping on crazy things, betting on incomplete management teams and incomplete technology because that's where we'll find the next Hotmail. A government SBIR manager? Don't be daft! Partner Steve Jurvetson of Draper Fisher Jurvetson, a VC firm. Draper's grandfather, a former Army general, opened the first West Coast VC firm in 1958. Since then the Army has lost whatever innovation spark the general had. At least in its SBIR.
Why Do We Need SBIR? Intel Corp. said Monday that it set up a $250M fund to invest in companies developing Internet applications for the computer-chip giant's new microprocessor technology. The new architecture, called IA-64, processes 64 bits of data at a time, rather than the 32 bits of earlier chips, and uses other design tricks to carry out multiple tasks at once. Santa Clara-based Intel plans to begin producing the first IA-64 processor, named Merced, in mid-2000. Intel said co-investors of the Intel 64 Fund are Compaq Computer Corp., Dell Computer Corp., Hewlett-Packard Co., Silicon Graphics Inc. and NEC Corp. Other investors include Bank of America Corp., Circuit City Stores, Ford Motor Co., General Electric Co., McKesson HBOC Inc., Reuters Group PLC, Sabre, SmithKline Beecham PLC, Sumitomo Corp., Sun America and Telmex. Such funds are used by Intel, and other high-tech giants such as Cisco Systems Inc. and Lucent Technologies Inc., to invest in companies that can make their products more useful. [Arizona Republic, May 11] Wanna bet the government ignores Intel's $250M and funds the same stuff anyway? And when the SBIR project is over, it will be too late to get into the market because the Intel grads will be in touch and already established.
What Now, Sir Expert? Most experts believe that without deep changes in both industry behavior and government policy, US microelectronics will be reduced to permanent, decisive inferiority within ten years. [MIT's Charles Ferguson, Harvard Business Review, 1988]
Who's Gonna Testify Companies scheduled to testify at the House SB Committee SBIR hearing May 25 have plenty of experience. Intelligent Automation (Rockville, MD) 59 awards, grown from 2 to 38 employees 1987-1998; Cree Research (Durham, NC) 17 awards, grown from 6 employees to a $700M market cap 1988-1999; ADA Technologies, (Engelwood, CO) 38 awards, grown from 3 to 36 employees 1986-1995; plus inexperienced Personal Improvement Computer Learning (Reston, VA) 1 award (Scheduled, Gradual Reduction for Smoking Cessation). Expect the usual love-in as the politicians and the beneficiaries fawn over each other.
What's DARPA SBIR Doing? DARPA has awarded 36 Phase 2s from its FY97 crop of Phase 1s to 36 different companies. No favorites. Most awards have some commercial sounding possibilities. Only two companies are the commercially dead kind that do useful plodding research. And none is in the top rank of Multiple Award Winners. DARPA is soliciting again in DOD's summer solicitation.
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| What SBIR Should Do! Little CoreTek (Burlington, MA) got $6M venture money five years after it started up with a BMDO SBIR. But not for the founding technology of an optical correlator. Instead, it will make photonic tuners from its MEM-TUNE variable wavelength filters and Tunable 1550nm VCSELs for the fiberoptic communication industry. The Laser Focus World May99 piece says it enables four times denser packing of transmission channels. Parviz Tayebati left an SBIR-supported job at Foster-Miller (the by-far champion SBIR getter) to start his own firm in space rented from another SBIR-supported firm that had more need of rent income than research from the space. BMDO, which loves to start go-getters, gave him three Phase 2s in successive years 95-97 but required co-investment as the technologies matured. Got energy, a new and potentially profitable idea, but no independent business history? Try BMDO SBIR! | As a believer in the pursuit of self-interest in a competitive capitalist system, I can't blame a businessman who goes to Washington and tries to get special privileges for his company. He has been hired by the stockholders to make as much money for them as he can within the rules of the game. And if the rules of the game are that you go to Washington to get a special privilege, I can't blame him for doing that. Blame the rest of us for being so foolish as to let him get away with it. [Milton Friedman, CATO Policy Report, M/A99] Sound familiar? For "special privilege" substitute SBIR; for "the rest of us" substitute "government agency". |
250
Navy Winners
(May 12) See the Navy list of
Phase 1 SBIR winners from last winter's solicitation. Abstracts
coming sometime on the DOD Search Site. 250 winners. Company names
only, no titles. Some Navy favorites appear as usual: Foster-Miller 10
awards, Technology Service 7, Digital Systems Resources 6, Creare 6.
Over the years the multiple award winners make a lot of noise about why
their work is so worthy. Fine! Now let the Navy explain how these
companies are giving the Navy a competitive return on investment.
Measuring the outcomes of federally funded research programs should not be discussed within earshot of a researcher, scientist or engineer with a weak heart or high blood pressure. The consequences could be fatal. , says Technology Business M/A99 about the NRC report Evaluating Federal Research Programs: Research and the Government Performance & Results Act.. Taken seriously, the GPRA could spell trouble for SBIR which after 15 years could not pass any serious test. Not that any serious test has ever been tried. One problem is that SBIR has no grand strategy that suggests an objective against which progress could be measured. The politicians seem content to claim that they helped small business and they will not insist on any tough evaluation. They will let GAO continue to use a measure of post-SBIR sales as a ratio of SBIR input with no standard of a minimum acceptable value. Not profits, not taxes paid, not ROI, just sales, some of which are more low profit service back to the same agency. The politicians see no harm in distorting an agency's R&D program to serve no grander strategic purpose. Why should they? The agencies don't vote nor supply campaign contributions and the politicians apparently are not impressed by the agencies' R&D programs anyway. Besides, with no standards, the agencies can do what they would have done anyway. Imagine for a moment the prospect of the Army SBIR program having to calculate and defend an ROI on any basis.
One possible measure of program success would be that SBIR beneficiaries get private sector recognition on honor lists like The Red Herring's best 50 private companies or Forbes's list of the best 200 small companies, or such. The Red Herring's 1999 list had no SBIR companies after 15 years of SBIR. Of the biggest SBIR winners for 15 years, only one has a market cap over $500M -ATMI. Will any SBIR company ever rise to recognition? Not if economics plays no role in picking SBIR winners.
Note that I am not faulting Physical Sciences - a well-qualified R&D performer for the government that has done NOTHING wrong. Indeed it has done a lot right. It is though one of a class of companies that has done well from SBIR (at least 205 awards) since 1983 and now opposes co-investment requirements as an active member of the lobby group SBTC of which Bob Weiss is Vice-Chairman. PSI's Website says that 80% of its revenue comes from government contracts and that its revenues have been steadily growing over the past eight years. |
My questions go to government's selection criteria for SBIR. Whether the government will get the most of SBIR by pushing business to such companies is one of the big political questions for SBIR re-authorization. The government has a responsibility to the taxpayers to maximize the return for its SBIR investment and if the return (however measured) is lower than average for repeated investments in Physical Sciences or any other company, the government has failed its investment mission by continuing to so invest. | |||
Because PSI is a private company, and does not offer data for policy analysis, we must judge from sparse data how competitive an SBIR investment it is. Weiss has offered a glimpse into the post-SBIR of the Phase 2s funded by BMDO. From its Website one might deduce that a company that has had $40M of "investment" over 15 years and still gets 80% of its revenues from government contracts will need a giant return on the other 20% to show a high overall Rate of Return to the government intent on maximizing post-SBIR economic return. Government, when judging SBIR proposals, can require a report on economic return (which it should do for all multiple winners). Note that this ROI is to the government, not to the owners of PSI. An Exchange of Views To Bob Weiss: I'm glad you read my newsletter, and Yes I do want it to be accurate. I will hasten to correct any misstatement of fact, and I will be glad to publish a reckoning of your SBIR economic success. I would, of course, be free to interpret the facts of that success.
I once asked Gene Banucci to tell me ATMI's rate of return for the SBIR investments. He was to assume that SBIR took a proportional equity share for each investment at the share value at the time of the investment. Then the government's hypothetical stock holdings would be evaluated at today's market value to give an imputed rate of return. His number was over 30%. Although you are not a public company with a formal market value, you could nonetheless calculate such a rate of investment return from your 15 years of SBIR with your estimated valuation.
My policy feeling is that companies who have had a substantial SBIR investment and enough time to accumulate an economic return should be required to account for that investment. Fifteen years and $30M puts you near the top of the list (as your Website says).
You well know that I have a clear policy preference in SBIR for high-risk, one-time injections of seed money for an innovation in the most entrepreneurial companies. And I believe that SBIR must have an economic return to have a valid reason for government intervention in the R&D marketplace. I do intend to keep prodding the government to use SBIR for that purpose.
Of course, I have no animus
against any company. Every PSI is acting in its rational interest in
taking whatever free money the government is handing out. It is the
government that must be held accountable for its investment of the tax
dollars. For 13 years now, since I gave out the first Phase 2 SBIR - to
PSI - I have seen little such accountability and I intend to bang the
drum to call attention to the need for economic accounting of what is
supposed to be a program to advance the economics of technology.
Weiss's response: To set the record straight, PSI has had
the following Phase II SBIR contracts with SDIO-BMDO, with the Phase
III revenues indicated:
1. SDIO86-2 (DNA001-87-C-0114): Material Concepts for Controlling Space
Vehicle Emissions (A.Gelb), for $630,000. Follow-on funding of $1.3M
from APL for special (government-only) application.
2. SDIO90-001 (F49620-92-C-001): Vibrationally Assisted Transfer Laser
(S.Davis), for $499,713. Follow-on funding of $249,000 for special
(government-only) application.
3. SDIO92-003 (F30602-94-C-0057): Imaging Infrared Spectroradiometer
(W.Marinelli), for $492,409. Matching funds of $425,000 and follow-on
funding of $217,000 for government (classified) applications.
4. BMDO95-013 (DASG-96-C-0070): 30 KW Microwave Driven Plasma Sprayer
(M.Read), for $411,040. Matching funds of $180,000 from a commercial
company. A work in progress.
5. BMDO97-14 (N00014-98-C-0027): High Flux Atom Beam Tool for
Semiconductor Materials (A.Gelb), for $486,000. Matching funds arranged
with commercial company, with contract and matching just initiated.
As you can see, of the five contracts, three have been for unique and classified government applications, and two have commercial potential. Each has received, or is receiving, substantial matching and follow-on funding from sources other than BMDO. Of particular note is #3, which has received considerable attention in the remote sensing/surveillance community, and has also just achieved its first commercial sale for a related device. It is a technology that BMDO should be proud to have sponsored.
As you should also know, the only relationship between #1 and #5 is the use of the proprietary atom beam facility originally developed under NASA sponsorship. In the earlier project, the interest was purely in optical signatures for classified military applications. In the recently awarded project, which caught your attention, we have identified a very exciting commercial application. The corporate partner and commercial process are obviously not ready for publication, but it could be a winner for PSI. We did not require any stimulus from BMDO or you to seek and find this application. It is a real solution to a real problem and the partner is more than willing to cost-share.
I think that PSI's history with SDIO and BMDO is representative of its experience with other government agencies. More than half of the Phase II projects have been for highly specific government applications. Commercial spinoff, if any, is both serendipitous and delayed, and usually requires more than one contract to develop the ultimate commercial application. I have written a paper about our experience and the issue of "commercialization metrics" in general; in it I offer a new paradigm for SBIR topic selection.
As far as calculating a "ROI" for BMDO support, I would argue that your premise is incorrect to begin with. Government contract revenues with government deliverables are not equivalent to "equity". The government's "ROI" is measurable in terms of the value it perceives it has received for the technologies, devices or new capabilities delivered. If this had been true equity, it would have been invested in true product development for the commercial market, with limited application to the government's needs.
Neither BMDO nor any other agency has made an "equity investment" in PSI, other than to create some residual capabilities of unmeasurable value. Nevertheless, the total value received (government and commercial) from PSI's SBIR funding is considerable, with matching and Phase III funding, combined with (non-BMDO) product sales far exceeding total SBIR funding. If the obviously "non-commercial" projects are eliminated from the evaluation, the result is even more impressive.
You may have your own theory about the purposes of SBIR and how government agencies should spend their SBIR money, but it is not consistent with reality. To have PSI demonized for its SBIR success and my name held up to ridicule is not only unreasonable and grossly unfair; it is totally irrational. In the interest of intellectual honesty and basic fair play, I demand, and expect, a full retraction and apology. Next time, please check your facts before writing to a public audience. Note that Weiss's arguments of post-SBIR return use "serendipitous", unmeasurable", and "delayed", as would be expected of purely government R&D for purely government purposes. He would have it both ways: have SBIR be politically justified by economic return while rejecting that government should expect a systematic and measurable economic return. Which is also the position taken by many federal agencies as Weiss hints when noting that my theories are "not consistent with reality". True enough! So, the struggle for the soul of SBIR will be fought out between now and the re-authorization law in fall 2000. Companies who are small users or future users of SBIR might want to plunge in and protect their interests as the big users are doing in the halls of Congress.
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| To listen to the Clinton Administration, you'd think all this [job creation] was due to savvy fine-tuning on their part. But as a powerful new study done for the Joint Economic Committee by economists Richard K. Vedder and Lowell Gallaway shows, the opposite is the case. America is thriving in large part despite government efforts. [Wall Street Journal editorial, May 6] Clinton-Gore also supports SBIR as (in part) a job engine. Nice warm myth. The economists have found no net job creation from SBIR. (Oh, they found job growth among SBIR firms when they included the SBIR jobs paid for directly.) Still the SBTC stalwarts made their usual speech at the NAS symposium on Fast Track about the value of long-term research for economic growth while avoiding presenting any economic statistics to support the claim. | Navy SBIR got a puff-piece published in Wall Street Journal (May 4) wherein author Mark Yost painted SBIR as a purely Navy program. Success anecdotes were Qualcomm, Savi Technology, ViaSat, and American Superconductor. The admiral who runs ONR sounded like he invented SBIR and that it was the greatest thing for the Navy since scurvy prevention. As is typical for such stories by the agencies, it ignores any overall economic (or other) evaluation. WSJ editors might look deeper next time at such a story. |
| VC Overestimated. Fans of government subsidy for R&D love to complain about the unavailability and the greed of venture capital. Even if true, it is a smaller problem than conveniently assumed, says OffRoad Capital (Wall Street Journal, Apr 20). Altogether last year VC and angels only provided 7.3% of funding for private companies. | When you have no recent data, extrapolate from old data and announce a new finding. Maybe no one will notice your intellectual poverty. The SBA reports a soaring minority business growth with analysis of why Hispanic business is growing faster than black. Unfortunately, it's just an extrapolation of trends 1982-1992. |
| Q: How large a role will technology issues play in the 2000 election? Christine Varney's A: Much more than they did on the last election - but, alas, not as much as technologists think they should. [The Red Herring (May 99) interview with the former FTC commissioner. So, which role would you prefer the government play in technology? Subsidize the uncompetitive, level the playing field, or hands off? And if you want a subsidy like SBIR, what is your answer to subsidies for mohair farmers? | What distinguishes disruptive technologies from sustaining technologies - those that maintain a fairly stable rate of improvement by better meeting mainstream customers' established needs - is that they initially perform poorly by the standards of an industry's core customers. [CM Christensen & EG Tuttle, The Red Herring, May 99] Why do you suppose that the Army SBIR funds customer requirements and BMDO SBIR funds disruptive technologies? Which is more likely to have a long term impact on American technology? |
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| An Ivory Tower That Spins Pure Gold. ''Lucent is the best thing that happened to Bell Labs, and Bell Labs is the best thing that happened to Lucent,'' says Ravi Sethi, vice-president for computing and mathematical sciences research and chief technical officer at Lucent's communications software business. ... Chairman Henry B. Schacht pegged the labs' budget at a fixed 11% of Lucent's revenues. That way, scientists get more research money as the company grows--a strong incentive to help the company's performance. Since Lucent's spin-off, Bell Labs's [yearly] budget has increased 42%, to $3.7B ... Lucent also established an internal VC operation to fund researchers' ideas that don't fit into existing business units. Scientists get their ideas financed --and they get equity. ... The result is that today's Bell Labs is a hotbed of innovation--at a time when Lucent needs leading-edge technology in order to compete in the fierce market for communications gear. ... After the 1984 break-up of AT&T, Bell Labs began a period of downsizing and decline. ''The big industrial labs don't exist anymore,'' fretted William J. Spencer, then CEO of the semiconductor industry's research consortium, Sematech, in 1996. ''Where are the next breakthroughs going to come from?" The answer seems to be: from the new Bell Labs. [John Carey, Business Week, Apr 19] | Another nail in the coffin of the argument that the government needs SBIR because large labs are failing in innovation and/or research. Does government need to distort its R&D investment to fill a phantom gap in civil R&D in a nation awash in investment profit? The government could invest its R&D smarter by going with the civil investment trend instead of pretending that it does not exist and that the world is not changing faster than the mission agencies can keep up with. Escalating co-investment as a criterion for Phase 2 SBIR has never made better sense. |
SBIR Policy Shoot-Out. The National Academy of Sciences is having a one-day symposium on SBIR, May 5. Fast Track will be evaluated (far too soon for any useful evaluation) by both academics and industry, Archibald & Finifter will repeat their AEA paper, biotech awards in NIH and DoD will be reviewed, and an open session on policy with Congressional staffers. By invitation only. To ask to be invited, try the NAS overseer Charles Wessner 202-334-3801.
In 1998, the government funded 2948 of the 18267 SBIR proposals it got. 16%. Is that good or bad? Does it prove the program is competitive? Was it the equivalent of a national lottery? Remarkable, the have-not states who often carp about being left out had about the same 15%. Does that mean that distributional politics played a role or low numbers of awards are not the fault of the government? The advocates for both SBIR and the have-nots will be arguing for more money. Realistically, no matter how much money goes in, the selection rate will still be "low"; that's the way the world works. Proposals will rise to meet any extra money because the economics of proposing will not change.
| Roughly $221B was spent on R&D activities in the United States in 1998, according to NSF. As a share of gross domestic product (GDP), R&D investment was approximately 2.6% in 1998. Relative to GDP, the United States spends slightly less on R&D than Japan, but more than Germany, the United Kingdom, Canada and Italy. Of total U.S. R&D spending in 1998, 15% funded basic research and 23% funded applied research. The other 62% of R&D spending went to development. The private sector funds the majority of R&D activity in the United States. In 1998, industry funded $144B, the federal government funded $67B, and state and local governments, universities and nonprofit institutions funded $10B. Federal research funding as a percent of GDP has declined over the last decade because of the sharp cutback in defense-related research. .. Studies estimate that research can have extremely high spillover benefits. For example, Charles Jones and John Williams estimate that R&D spending offers a total return for society of 30% per year, compared with 7% for other investment. They conclude that R&D spending should be increased by at least a factor of four. [Fed Reserve Bank of Dallas- Southwest Economy, M/A99] [reference to CI Jones, JC Williams, "Measuring the Social Return to R&D", Quarterly Journal of Economics, Nov 98, 1119-1135] | It's that spillover effect that the SBIR advocates argue they provide. Unfortunately, they also imply that without SBIR no such spillover would happen. That is, they falsely argue that SBIR is the alternative to no R&D. SBIR rather is the alternative only to unrestricted R&D of the same amount of money which may or may not produce as much spillover as SBIR - a question that has never been tested. The SBIR advocates hope that no one tells Congress or that Congress will be so happy handing out a gift to the small businesses that it will ignore and nagging questions of relative efficiency. They could be right. |
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US Innovation Slipping. Business Week (Mar 22) reports a finding by the US Council on Competitiveness that US Innovation Ain't What It Used To Be. On a "innovation index" scale based partly on R&D funding, the US is trailing in rate of change so fast that it could lose its world lead by 2005 (to Finland, Denmark, Sweden, and Japan) because of "inadequate spending" on R&D and a shrinking percentage of technical workers. The same story appears in Issues in Science and Technology Winter 98. Of course, the first response of the science community is a request for more money for more professors and more US graduate students. Which may help but would be quite controversial and a merely sledge hammer approach. SBIR advocates could conceivably claim that small business is the best place to spend more money if efficient innovation is the desired result. Unfortunately, the SBIR advocates cannot make a convincing case with mere platitudes and a few scattered anecdotes. Nor do they seem bent on exposing their 15-year experiment to hard analysis that might prove or disprove their platitudes. They could argue that they have the goods but that the government has so far mismanaged to exploitation of those goods. It does the US no good to pour money into a class of beneficiaries in a way that ignores the strengths of the beneficiaries. Merely doing contract research for a government agency does not capture the innovation potential of the entrepreneur; it uses the company as a substitute academic.
Army Action. The government can move fast when it chooses. Simpex Technologies (Brea, CA) won a California competition for state support money as a potentially great new high-tech company. But the award requires matching federal money (California likes federal money too). CEO Bernie Siu's problem was that the California money wagon would turn into a pumpkin if the federal contract wasn't done quickly. Bernie got his Phase 2 proposal into for a non-destructive laser inspection into BMDO a little slowly (takes time to line up partners). BMDO hopped right on the evaluation and decided to fund it only two weeks before the California deadline. But the Contracting Officer, Joe Ward of the Army, appreciated the urgency and got the Phase 2 contract awarded in two weeks. Two weeks for what on average takes several months.
SBIR Re-Authorization., The dance is to begin in May. Congressional committees are scheduling hearings for May to prepare for the reauthorization due in Election Year 2000. By the time the election is upon them in October 2000, the politicians, both Gore and the Congress should be in a giving mood for high-tech anything. They will even overlook the inefficient way SBIR has been mangled for 15 years. To get embroiled in the "politics of economic nonsense" tune in to the interest group politics of SBTC and/or the lively controversy on the message board at Inknowvation'sTwo Cents
Half The Loaf Will Never Do. The SBIR advocates are frothing at the Commerce Department's proposal that ATP be exempted from SBIR because ATP alread makes half its awards to small firms. Since ATP is practically the whole base for Commerce's SBIR, the effect would be to reduce the NIST SBIR program budget by over 90% (the NOAA base). See them froth at Two Cents Worth. They compare NIST's action to NIH's proposal that SBIR was not good enough for NIH. He major difference is that NIH did not already give half its awards to small business.
OK, who's really Conservative out there. Let's get the Republican tax cut (s) for the dead and rich by slicing $100M per year out of SBIR. The same 2.5% will be set-aside but 10% of it would be returned to the Treasury (with a bright green bow). No one company will suffer disproportionately and the small business community can boast of saving America from tax-and-spend government. No, of course the same rule should NOT be applied to civil service pensions because we're all hopeless Democrats, aren't we? Between January 1980 and September 1997, almost 13,000 technology companies got venture capital. By December 1997, 1,099 companies had gone public, and of those, only 59 percent were trading above their offering price or acquired at a premium. Furthermore, there were only 45 stocks whose value increased tenfold or better. Natural selection is alive and well in the tech sector. [C Graja, Bloomberg Personal, March 99] If natural selection is alive and well, why does government have to intervene with subsidies like ATP and SBIR? Who really benefits? What is the return to the taxpayer? ATP at least (in principle) adds to the stock of R&D performed (practice may be different as Scott Wallsten found for publicly held SBIR companies that merely substituted government funds for private funding of its R&D). SBIR adds nothing to the stock of national R&D and has never been able to demonstrate that it has any economic effect. The operative theory that small firms produce more innovation and must therefore be subsidized has been effectively gutted by the government's operation of SBIR in ignoring the findings of several decades of innovation research and instead serving its own knowledge needs.
| You are Our Sweetheart, says South Carolina about high-tech companies as it opens a campaign to attract business to the state that started the Civil War. SC wants to diversify from attracting just manufacturing which used $5.5B of $5.8B last year's new capital investment and is a reflection of the multi-decade move of manufacturers to labor-unfriendly territory. In a copy of most states' claims, SC will upgrade its education and its corporate income tax rules. Prospective takers of SC offers might first consider whether they want to be in one of the most medieval states where birth means more than anything about your social standing. Nice golf weather, though. [facts from WSJ, Feb 22] | Meanwhile in Southern California Although venture capital investments in Southern California firms rose dramatically last year, a new survey finds the region's growing businesses still facing a so-called capital gap, in part because of a lack of veteran entrepreneurs and insufficient networking. ...An estimated 25% of the region's venture funds opened within the last three years. Twenty-seven venture firms are based here, compared with eight in 1994. An estimated 70% of the region's venture investments in 1997 were made at the "seed," or early-stage, level--a positive sign for very small or very new businesses. The region's venture funds spent 33% more of their investment dollars in Southern California last year than four years ago, a good sign for the local economy. More than 75% of venture capitalists here said Southern California is lacking veteran entrepreneurs with successful track records. More venture firms are needed here. 94% of the firms said they got most of their deals on referrals from other venture firms. [LA Times, Feb 22] |
| DOD wants commercializers for its Dual Use Science and Technology (DUS&T)Program which is seeking proposals in Sensors, Propulsion, Power, and Fuel Efficiency, Information and Communications Systems, Medical and Bioengineering Technologies, Distributed Mission Training, Advanced Materials and ManufacturingAnd Environmental. In 1999, they want to spend $115M in commercially relevant technologies. Proposals due May 4 and a public show and tell is set for march 25 in Chicago. Points of Contact: Dan Petonito, program manager, (703) 681-5451 ([email protected]), Army: Mr. Tom Killion, (703) 601-1535 ([email protected]), Air Force: Dr. J. Fuller, (703) 588-7867 ([email protected]), Navy: Ms. Cathy Nodgaard, (703) 696-1289 ([email protected]). www.dtic.mil/dust, e-mail dus&[email protected]. | A classified congressional report detailing Chinese espionage in the United States has put the nation's computer industry on a collision course with Congress. Release of the report, scheduled for next month, appears certain to trigger a high-stakes showdown over export controls involving billions of dollars in potential corporate earnings as well as allegations that high-technology executives have sacrificed the nation's security in pursuit of profits. [San Jose Mercury, Feb 21] The clash between a Congress that wants to pass laws repealing inconvenient laws of nature and economics and a Congress that wants to reward its contributors. Complex worlds are too much for platitudinous lawmakers. |
Make Money. John[Doerr], says TJ Rodgers [WSJ, Feb 8] and stop wasting your valuable time politicking. Rodgers is the CEO of Cypress Semiconductor and startup by Doerr's VC money and consistently warns Silicon Valley companies to stick to making money and out of politics. He also tells the government to get out of subsidizing tech companies because the government bumbling will do more harm than good. Doerr set up a SV lobby group - Tech Net - because he thought it had to be done and no one else would do it. SBIR doesn't figure in Doerr's or Rodgers's universe because it has far too little success in creating valuable market cap companies.
The strong US economy has not only wiped out the budget deficit but is convincing lawmakers that government R&D spending spurs economic growth. ... Still, that doesn't mean Congress will start showering money on science. It's not even a sure thing that R&D proponents will win major budget increases for 1999 and beyond. But, if Congress likes R&D, even if for the wrong reasons, it is more likely to let SBIR continue.
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The Money Bomb Again The VC investors did it again - a record inflow 0f $12.2B into small business in 1998. Up 13% from 1997. [Says VentureOne Corp.] So, why does the government have to supply $1B in SBIR to firms that cannot or will not feed from that river of private money? Answer: it doesn't. But also it doesn't know how to stop a flow of goodies. Not in an election year, anyway (which is every other year). So, who benefits from SBIR? On balance, no one because the government spends no more money on small business technology than it would have spent without SBIR. Actually, one class of winners is the marginally competitive private tech companies who don't have to worry as much about competition from below because that government $1B is not going into market-competitive companies and projects. And since there are no political losers, and the advocates have painted a mirage of a lot of winners, and since it requires no appropriation, SBIR will muddle on after its official demise in 2000. Most of the money will go to projects in companies that have no hope of having any more invested after the SBIR ends.
In defense, there is always a place for continuity and incrementalism, which are up-market names for a policy otherwise more bound by the grip of the past than by a summons to change. [S Rosenfeld, Washington Post, Feb 5]. Which helps explain DOD's attitude to SBIR.
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We Love our FictionsThe core Republican theme is that Americans are overtaxed and the surplus, or some of it, should be used to put this right. Rather than using tax breaks for social policy, Republicans want to give it the American people their money back. Although this sentiment is honourable, its details are dubious. Although tax revenue as a share of GDP is at historic highs, most of this increase has come from the top income brackets. "Ordinary" Americans have not seen their effective federal tax rates rise. Nor is it clear that a broad-based tax cut makes good policy. With the American economy still charging along, it hardly needs a huge fiscal stimulus. And anyway, beyond entitlement reform, the next priority is to devise a better tax code. {The Economist, Jan 30] If you are a small innovative business, what is your favorite tax/government policy? R&D tax credit? Handouts from general revenue fund in the form of SBIR? Lower taxes and less government R&D spending? | ||||||
More Tech Money, Pay More TaxesVP Gore said Clinton will ask for 28% more in information technology research - another $366M for NASA and NIH and universities for advances in computing and communications technology. The money would cover three types of research: basic computing and communications breakthroughs; applications for new technology such as compressing the development time for drugs or more accurate weather forecasting; and the social and economic implications of new technology. Gore rolled out the proposal at the annual do of the American Association for the Advancement of Science. If a little bit is good, a whole lot is better especially if the government has a budget surplus and a politician is running for office. Well, we'll see whether the republicans can be true to their smaller government mantra and vote against passing out goodies. Nothing wrong with info-tech research; the question is how much is enough for government to do. Where does the new money come from? Better you shouldn't ask.
If you want to play SBIR, you should be either fish or fowl - a mission agency service contractor or a commercializer. No swimming chickens; straddling won't work. You get no extra points with the missioneers for commercial success and a mere pretense of commercialization won't work at BMDO nor in real life. NASA and the military services want their agendas serviced. BMDO wants firms who can put real technology in the private markets and pretending mission relevance won't make any difference because BMDO knows that its own people won't follow through. No, don't worry NASA, SBA loves ya. They'll rationalize your choices as "scientific and technical merit" with no threat of any dreaded co-investment demand. |
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SBIR Loses a Friend.
(Jan 11) No, he did not die. The BMDO executive who sheltered SBIR from
internal agendas and budget power games has left the government to
be a CTO for a band of angels. Dwight Duston understood that SBIR could
only work well if left to a consistent mission of seeding technology
for private sector pick-up. Dwight was the only SES in BMDO with such
vision and let the SBIR manager do the job without either
second-guessing or micro-management. SBIR manager Jeff Bond will now
have to fight the pirates alone and he hasn't got a high enough pay
grade to prevail for long. High sounding arguments by a low ranking
person don't do well in a bureau. If you're good, though, with real
business prospects (not the blather for government), you could find
Dwight on your stoop with a small pile of cash. Careful, though, he
does know his physics.
ATP's Got $66M
(Dec 4) NIST's ATP expects $66M for first-year funding of new projects that
potentially offer broad-based economic benefits for the nation.
NIST also thinks that would induce joint industry/government investment
of from $300 million to $450 million through 2003.Nice theory! This
year it's just one big competition. Maybe NIST gave up the idea of
targeting funding for specific industries that their analysis need
whatever help ATP can be. What's a small company this year that must
stump up 60% of the money? Revenues under $2.7B. proposal deadline:
April 14.
NSF Matching Money
(Jan 11) Last year when NSF offered to extend Phase 2 SBIR to 40 firms,
only five applied and four of those got it. This year's offer is one
NSF dollar for every two third-party dollars up to $100K with a minimum
third-party amount of $100K. The basic rule pioneered by BMDO applies:
the federal money is for R&D and the private money can be for
whatever advances the market prospects. One departure from BMDO is that
the third-party money cannot be in-kind. NSF says it expects to hand
out 30-40 extensions among the 170 invitees. At BMDO the percentage of
takers would be a stampede because the type of Phase 2s would be more
economic in the first place. It will take NSF a long time to switch its
both Phase 1 and 2 to economics-driven projects from science, sweet
science. [facts from Chris
Busch's Wyoming Newsletter which has posted its back issues] Chris
was a small California R&D business CEO before SBIR and sits on NSF
SBIR panels as business advisor to puncture proposers' commercial
fantasies. Return to Index
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If anyone were to take NASA to task over its selections (see table below), it would not be because they have no value; they do. The winning firms certainly think it's great technology. But they must be compared to what might have been done by other companies with wider goals. That will NOT happen because NASA will never reveal what options it had back in Phase 1 and even further back when it let it be known what kind of proposals it wanted. It's OK though, because the politicians cannot think that deeply about the subject even if they hadn't got themselves all atwitter over impeachment. |
At least
Archibald and Finifter raise a good question: what is SBIR anyway?
Don't expect a clear answer. It's whatever each agency makes it
regardless of how hard the agency thought about unintended
consequences. It will never have a rigorous evaluation because the
evaluation has to serve a political purpose and politicians do not deal
well with complex answers. Like their attitude toward scientists, they
always complain about two-handed economists (on the other hand...).
A&F's discussant (AEA
has another expert do a book review type analysis of each paper) was
Josh Lerner of Harvard, the one person outside government who has done
serious economic evaluation of SBIR. (It was one of the most organized
discussings I heard in three days.) Josh saw three issues: Questions for A&F: Since you took the emperor's money to evaluate the emperor's program, how will you report the results to keep your credibility and get more business from the emperor? Since you are dancing gingerly around the question of SBIR's value, what will you say when they ask you whether SBIR did anything NASA wouldn't have done anyhow? Since the beneficiaries had an incentive to self-report success, did you get any independent validation of the beneficiaries' responses? How will you avoid the hate mail that Scott Wallsten got for evaluating SBIR? |
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| SBIR evaluators at least have data to massage, however badly they do so. A little volume for American Enterprise Institute [L Yager, R Schmidt, "The ATP Program: A Case Study in Federal Technology Policy", 1997] critiques ATP with no data at all. From considering just the solicitations, they conclude that the overlap between program that expand social benefits and those that are politically successful is very small indeed. In anti-Democratic argument AEI starts with the idea that ATP is a Clinton program. It actually started long before when George Bush had not the courage to veto it at $10M a year. Since then it acquired the usual defensive bureaucracy coupled with the classic fantasy of the beneficiaries that government can pick business projects for any purpose. The authors claim that although the idea was to support certain class of projects, the government is clueless about how to pick them. | If you're a monopolist you treat your costs as externalities and shift them to the "customer". Consider the Navy SBIR. Rather than having enough server to handle the pre-proposal crush twice a year, it issues warnings that there will be crowds. When there were just paper proposals (now business have to do both), the business was in complete control of assembling the proposal and had only to meet the deadline. Now businesses could be shut out of proposing by the Navy's restricting the flow channels. It works for the Navy to reduce proposal count, even though it gives them the wrong result. Instead of getting the best proposers, it gets those most adept at handling the registration. To a bureaucrat, it's perfect since it cuts down workload without affecting any measure for which the bureaucrat is responsible, like technical quality of the program. Then when a business complains that it could not register its proposal during normal business hours, the Navy says "we told you so". Only a monopolist can treat customers that way. |
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