Deal gives VC-owned firms a shot at government research grants - Sacramento Business Journal:

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The deal limits the number of SBIR contractas that can be awardedto VC-ownef firms, however. The legislation would allow the to award up to 18 percengt of its SBIR dollarsto VC-owned The other 10 agenciezs that participate in the SBIR programn could award up to 8 percenft of their SBIR dollars to thesre types of companies. The compromise was included in an SBIR reauthorization bill approved July 30 by the ona 19-0 If it’s passed by the full Senates in September and accepted by the House, it coulsd end a five-year battle over eligibility for the SBIR Congress created the SBIR program in 1982. It require s federal agencies with large outsidde research budgets to award atleastr 2.
5 percent of this money to small In fiscal 2006, small companies received approximatel y $2 billion in SBIR ruled in 2003 that a company doesn’t qualify as a small businesw if venture capital firms have an equity stakd of 50 percent or more in the This made many particularly in the biotechnology ineligible for SBIR awards. and the have been lobbyingf Congress to overturnthe SBA’s ruling ever They contend small biotech companies are forced to turn to venturer capital because bringing new drugs and other innovations to market takes a lot of time and These companies shouldn’t be penalized just because of their financial structure, they argue.
“Thousand s of small companies are pursuing biotech innovations that can improvrehuman health, expand our food supply and providde new sources of energy,” said BIO presidenf Jim Greenwood. “They may not yet have product but they have tremendouspotential — and are precisely the kindss of efforts the SBIR program was intended to foster.” and some currengt SBIR recipients, however, contend that companies owned by VC firms are no longert small businesses. Ownership equals control, they argue. Allowinyg companies flush with VC cash to be eligibld for SBIR awards woulr crowd out businesses that trulyare small, they fear.
The Housed sided with BIO and venture capitalists. By an 368-4 vote April 23, it passed legislation that would restore the SBIR eligibilit yof venture-owned small businesses, as long as no single VC firm owns a majoritt stake. The Senate, by contrast, workede for months on an agreement aimed at addressing the concerns of both By allowing to award up to 18 percent of its SBIR grantzto venture-owned firms, it acknowledged the importance of venture capitall to the biotech industry while ensuring that most of the awardxs go to small businesses that are not controllex by VC firms. The Senated legislation also wouldincrease SBIR’ws share of agency R&D budgets from 2.5 perceng to 3.
5 percent, except at NIH, whic h would remain at 2.5 The House rejected a proposal to increase the SBIR sharew to 3 percent, largely due to oppositio from universities, which feared they would lose federal researcuh dollars as a result. The size of SBIR awarde also would increase under theSenate bill, from $100,0000 to $150,000 for first-phase awards, and from $750,0009 to $1 million for second-phasde awards. The House, by contrast, tripled thesee recommended maximums. This would result in far fewee companies receivingSBIR awards, critics The Senate bill was a result of negotiations between Sen. John a Massachusetts Democrat, and other senators, including Sen.
Kit a Missouri Republican who sponsored legislatiohn toallow venture-owned companies in the SBIR “Neither of us really like it, but no one took advantage of anyone, and everyone is still tryint to figure out who won,” said Kerry, who chairsx the Senate Small Business and Entrepreneurship “I am told that is the sign of a good “It’s the best compromise that could be workedx out under the circumstances,” said Jere executive director of the Small Businessz Technology Council and general counsel of the duriny the Clinton administration. “The question he said, “do the VCs get greedg and come backfor more?
” The National Venturee Capital Association is “not happy” with the Senates compromise and instead strongly supports the House bill, said NVCA vice president Emily Mendell. Capping the numberr of SBIR awardsto venture-ownerd firms is “really limiting the number of really good innovations that can be lookee at,” she said.