Venture capital firms, long frustrated with eligibility changes made to the Small Business Innovation Research Program, may soon have something to cheer.
New legislation, designed to allow companies that are majority-owned by venture capital firms to participate in the SBIR program, is winding its way through the U.S. House of Representatives and has a good chance of passage, thanks to bipartisan support.
Bill H.R. 276, which would allow companies to apply for SBIR assistance as long as one venture firm does not own more than half of the small business, passed its first hurdle last Thursday when a subcommittee of the House Committee on Small Business approved the proposed legislation. The committee will likely send it to the House floor in the next week or so.
The bill was introduced recently by one of the committee’s ranking members, Rep. Sam Graves (R-MO), who earlier this month said in a statement that “opening up the SBIR program is exactly the kind of legislation Congress should be passing to help small businesses create new, good-paying jobs. Small businesses develop more patents per employee than large firms; investing in our small innovators is critical to our future.”
A separate bill aimed at increasing the award size of SBIR grants—H.R. 2772, introduced by Rep. Aaron Shock (R-IL)—was also approved by the subcommittee last week.
Currently, the SBIR program awards grants of up to $750,000 for two years of research to encourage innovation. The grants are awarded by 11 different federal agencies, including the National Institutes of Health, the Department of Defense and the Department of Energy, with oversight by the Small Business Administration.
A 27-year-old program, the SBA changed its qualification requirements under President Bush in a move that infuriated many in the venture community. Beginning in 2003, any company that had a greater than 50% ownership stake by a venture capital firm became ineligible to apply or receive SBIR funds.
“A tiny company that receives venture capital financing is not flush with cash. Nor is its success guaranteed,” said NVCA President Mark Heesen in a recent statement. “Venture capital financing is restricted to very specific areas of company growth. Not basic research.”
SBIR grant money, if earned, would be channeled directly into early stage discovery projects which include everything from new cancer drugs to renewable energy sources, according to Heesen.
“So without government support, these meaningful projects have been postponed or abandoned,” he said.
Several previous tries at changing eligibility to the SBIR program have fallen flat. Last spring, for example, another bill supported by the NVCA was voted down in the U.S. Senate. But several factors are now giving the venture industry new hope that changes to the SBIR provisions will be made.
For one thing, President Obama has an affinity for venture capital that dates back to his days as an Illinois state senator. A number of VCs worked on his presidential campaign and on his transition team, and some have jobs in his administration.
The venture industry is also likely to find Karen Mills, the new SBA administrator, receptive to new proposals. Unlike her predecessor, Steven Preston, who fought against the NVCA, Mills—appointed by President Obama—previously worked as a venture capitalist and co-founded
In addition, a growing number of Republicans, including Graves and Shock, are rallying around the VCs.
“The fact that we’re coming to some sort of bipartisan agreement is a very positive sign for us,” says NVCA spokeswoman Emily Mendell, who adds that the NVCA wholeheartedly supports the new legislation.
Another favorable change for VCs is that Sen. John Kerry (D-MA), who chaired the Senate’s Committee on Small Business & Entrepreneurship, has since moved on to chair the Senate Committee on Foreign Relations. Kerry previously didn’t support the inclusion of startups that are majority-backed by VCs in the program, saying in 2006 that they could “crowd out small companies that are not blessed with venture capital.”
His replacement, Sen. Mary Landrieu (D-LA), appears to be more amenable to the idea. Landrieu is co-sponsoring the Senate version of the measure with Sen. Olympia Snowe (R-ME), one of three Republicans who supported the $787.2 billion American Reinvestment and Recovery Act, passed in February.