Government Stories 1996-97

Stories that earlier appeared in Nelson's News 
Note 1: Carl Nelson Consulting, Inc is not an investment adviser and may hold a financial interest or client relationship in companies discussed.
(Note 2: Carl Nelson Consulting does not endorse these companies or organizations or their activities.) 
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President Suharto announced a 32% increase in government spending; more subsidies, not fewer; growth estimated at 4% against some forecasts of a contraction -- all signs of a government too worried by political unrest to accept economic reality. [The Economist] Sound like any SBIR proposals you've seen or written?

.... Meteor burst communications and other low frequency systems. Even though MBC systems would be enhanced by the increased meteor flux, the variability in flux, particularly if there is strong latitudinal dependence, needs to be understood and modelled accurately. Chemical processes that convert atomic ions from the ambient atmosphere at higher altitudes into molecular (meteoric) species need to be included in the model, as the molecular ions will be quickly neutralized by reaction with ambient electrons, leading to the depletion of the latter. 2) Phase I product will be software that provides density profiles of the major meteoric metal ions (Fe, Mg, Ca, and Na) as a function of altitude, increases in these densities due to shower activities. The model should include the effect of electric fields and winds. In addition Phase I should lead to a roadmap for proceeding to phase II: a software package that the above, incorporation of meteor orbital mechanics, including those of their parent comets, incorporation into a sky map that allows the user to display a region of the sky, expected howers at a particular date, and views from different parts of the earth. It is expected that the roadmap should lead to the description of a software that can be used on a PC.

If your technology has an economic future, which of these two agencies would be most likely to understand its value and judge your investment prospects. Which agency would you rather have in control of your destiny? Of course, if your technology is upper atmospheric chemistry, you don't have a lot of economic choices.

Massachusetts stocks lagged the market overall in 1997 by nearly 10 percentage points, as small technology companies here suffered more lows than highs. The Standard & Poor's 500 index gained 31%. By comparison, Bloomberg's Massachusetts index posted a return of 22%. The Nasdaq index was up 22%. ''Tech's gotten killed, and Massachusetts is tech.'' said one Boston stockbroker. Indeed, 70 of the 161 stocks that make up the Bloomberg Massachusetts index are biotechnology companies or computer hardware, software, networking, and other high-tech companies. Many are the relatively young companies proliferating around Route 128.[Kimberly Blanton, Boston Globe, Jan 1] Platinum Technology moved into the national spotlight Tuesday when Intel Corp. announced it will make an equity investment in the computer software maker. Although both parties declined to specify the amount, a person familiar with the situation said the investment was more than $40 million. News of the deal sent Platinum stock up 17% percent. [Platinum] expects $600M revenues. ,not exactly an SBIR candidate but a sign that strategic partners can be found. [Chicago Tribune, Dec 31]

More R&D Spending
(Dec 31) Big business is undercutting SBIR again as it budgets a 4.6% rise in R&D for 1998 on top of a 4.2% growth in 1997. Says Battelle Memorial Institute. As industry does R&D, the case for government's doing it diminishes. Government will still need to fund R&D for its own internal purposes in the mission agencies, but the case for NSF's SBIR gets weaker as industry funds commercial R&D. Don't worry, though, there is still the fantasy that SBIR increases funding for small business in federal R&D. Which actually would make some sense if the agencies would use small business for what it does best - entrepreneuring new ideas - than just mimicking what large entities can do as well or better - research.

NASA Phase 2s
(Dec 29) NASA funded 101 SBIR Phase 2s (of 320 proposals) for $59M in 87 firms. Triple wins to Physical Sciences (one of the top four SBIR winners since day 1) and Triton Systems (an escapee from Foster-Miller). Double wins to ATMI, IAI, Nielsen, Pixelvision, Creare, Nanomaterials Research, Scientific Systems, Sensors Unlimited, Stotler-Henke, and Xinetics. Only a handful of companies sound like they have any serious chance of commercializing even though all have probably waved their hands somewhere in the proposal about a commercial fantasy.

On balance, a conservative lot of projects.

If you are thinking about proposing SBIR to NASA, think incrementally and think about direct NASA use of the product. Any commercial intent is at your own risk. Think also how you can schmooze the NASA project selectors at the centers. Return to Index

What conclusions about NASA'a approach can be drawn from the titles, just the titles? 1) We would rather have defensive analysis than new ideas with disruptive innovation as evidenced by such stuff as: THE ORIGIN AND SIGNIFICANCE OF ELECTRICAL STRATOSPHERIC PHENOMENA; A GRAPHICAL INTERFACE TOOLKIT FOR NETWORK BASED CFD; BOUNDARY AND FINITE ELEMENT METHODS FOR THE APPLICATION OF NEARFIELD ACOUSTICAL HOLOGRAPHY; SIMULATORS FOR CHEMICAL AND PHYSICAL VAPOR TRANSPORT CRYSTAL GROWTH; MULTI-DISCIPLINARY THERMAL-CFD MODEL DEVELOPMENT; REAL-TIME HEALTH MONITORING OF FLIGHT CRITICAL SYSTEMS USING FUZZY CMAC; AN INTELLIGENT INFORMATION SEARCH AGENT FOR THE AERODYNAMICS ENGINEERING PROCESS; and A PILOT CENTERED TURBULENCE ASSESSMENT AND MONITORING SYSTEM. 2) We like old comfortable shoes that don't jump very high with such winners as Foster-Miller, Scientific Systems, Creare, Lynntech, Space Power, Stottler-Henke, SPEC, Thermacore, Charles River Analytics, EIC Labs, Fiber & Sensor, Physical Sciences, and IAI. These guys have had years of SBIR and still win the same sounding projects. 3) One-off, NASA-peculiar projects are loved because they directly support some NASA mission: stratospheric phenomena, drifting ocen station (Ice Station Zebra), planetary exploration, dinitramine monopropellents, and Mars in-situ propellant production.

Two DOE SBIR Spectrometers.

A key requirement for efficient distribution of natural gas is automated real-time monitoring of its BTU (i.e.caloric) content and composition. This project will develop a spectrometer based on multispectral measurement of the optical absorption of the natural gas components. Phase I will demonstrate the potential for accurate low-cost BTU sensors based on this approach and will collect the necessary spectral and technical data required to project system performance. In Phase II, a field deployable prototype will be developed and tested. Commercial Applications and Other Benefits as described by the awardee: This effort should lead to the commercial production of a low-cost, on-line BTU/ composition sensor to meet the market requirement for cost-effective automated monitoring in the natural gas transmission and distribution industry. Hear any innovation grabber? Sound like something that should first pass an ROI test? If it passes the ROI test, the private sector should be doing it; if not, then it should have some compelling reason for government intervention. Spectrometers hardly qualify as breakthrough invention, especially for a company that has been in the gas sensing business for years. Note there the abstract gives no hint of the nature of the innovation being exploited in the new instrument. And from a hardy SBIR veteran. Real Time Monitor for the Laser-Based Coatings Removal System. Pulsed-CO laser systems are used to remove contaminated lead-based paint and two-part epoxy coatings from the surface of DOE facilities. These systems have the advantage of complete coatings removal with prompt capture and disposal of ablated material. Because highly variable coating thicknesses are encountered, it would be economically beneficial to incorporate an on-line sensor with a feedback control when thicker layers are encountered, or, if needed, to stop, reverse and reclean a spot. This project will develop an on-line sensor for Pb, U and Pu to be integrated with a laser-based coatings removal system. In Phase I, a prototype single element monitor (Pb) will be integrated and tested for active feedback control with the coatings removal technology. A spectrometer system will be used to characterize the plasma for optimum detection of lead and uranium. The combined experimental results will be used to develop a design for a multi-element sensor. Assembly and testing of the multi-element sensor will be the focus of Phase II. Commercial Applications and Other Benefits as described by the awardee: The developed multi-element on-line spectral sensor package would be an integral part of the laser-based coatings removal technology. One of these sensors would be incorporated into every field-deployed system.
Such projects flow naturally from selection committees who try to satisfy many objectives including a "fair" distribution of the money. Committees hate risk and technical experts don't care much about the role of government in subsidy. Your problem in competing with these guys for this kind of project is that they know where the DOE knobs are. To beat them, you need a much better mousetrap and a dynamite story. On the other hand, if you are that good, go to BMDO where you have more chances for the right kind of Phase 2 than a cookie-cutter product of timid bureaucrats and committees. Compare BMDO. A breakthrough Compact High Torque Density Motor with an ultra-high resolution operates at high (50%) efficiency by using a PZT charge recovery module and switching amplifiers, and can be low cost (modest machining tolerances). 1.90 rpm and 30 ft-lbf ultra-high resolution, with no backlash. Operation at 10 rpm and 1 ft-lbf load. In Phase II, tested and certified at the Phase III sponsor's facility. Three distinct commercial and military applications. Note the contribution from the Phase III partner during Phase 2. BMDO wants parallel, not sequential, market preparation. And so should you.

Energy Soliciting SBIR
(Dec 18) Telling phrases from the DOE FY98 solicitation that closes March 2. cold fusion will be declined, enhance or augment the current research being done in the Department, To effectively address these concerns. In FY97 the Energy SBIR reeked of the usual names that do good research for whichever government lab has money. Phase 2s went to such veterans as SRL, MER(2), Spire, POC, Lynntech, PSI, EIC Labs, Mission Research, AFR, companies that have had enough SBIR subsidy to be public and thriving. The Phase 2 list has a similar, and partly overlapping litany. The message to potential proposers is be conventional and don't worry that poor commercialization will be held against you.

Maybe Energy could use some advice from Eric Schmidt who went from being chief technical guru of Sun Microsystems to CEO of Novell (staggering from disastrous purchases of WordPerfect and Borland) but stayed in Silicon Valley. Po Bronson writes (Wired, Jan 98) that part of Schmidt's method has been to give the stable, dedicated corporate culture on Provo a fresh breath of Silicon Valley's aggressive, risk-taking style. Return to Index
If you want to compete with these veterans, you've got to carry to battle to them. Since you can't compete with them on exploiting the DOE process, you want to spend your energy telling Energy how your idea has an overwhelming competitive advantage. Names the names and cite the numbers, especially competitive market economics. You will lose if you just say that your research is valuable.

Krauthammer thus lauds immigrants and entrepreneurs (often combined) and says that politicians are along for the ride. Occasionally, politicians try to steer the boat on the white water with programs like ATP and SBIR. Unfortunately, such programs do little except give the beneficiaries the illusion of success for which they are expected to thank the politicians with re-election. Meanwhile, the politicians do what they can to impede hard evaluation of the programs. Typically, the have hearings wherein beneficiaries testify about what they gained. Join the beneficiary crowd for 1999-2000; join Small Business Technology Coalition.

The Voice of Learning we have completed a [Phase 2 NASA SBIR on] high temperature superalloy composites. [It] was a mistake that cost us dearly in opportunity costs. We won't be doing any more high temperature work. NASA got what it wanted - its hands on the technology and a tap into the brains of the smart scientists. Was that enough to make a fair SBIR bargain for the small company? Or does the company have only itself to blame for being left nowhere?

Howard County [Maryland btw Wash & Balto] may open a business incubator to lure young technology companies. "More and more, high-technology start-ups are critical to our economy," said County Executive Charles I. Ecker. Howard has indeed become a mecca for high-tech firms during the 1990s. The number of information-technology jobs in the county mushroomed from 1,450 in 1990 to an estimated 4,100 by 1996, ... The economic development authority has hired the Rockville-based High Technology Council of Maryland to perform the incubator study. The council already operates the Montgomery County technology incubator in Rockville and will manage another in Gaithersburg. [Baltimore Business Journal, Dec 29]

The I-4 High Technology Corridor Council plans to ask state lawmakers for $925K to fund this coming year's efforts to lure high-tech companies to Central and Gulf Coast Florida. That's the same amount of money the group asked for -- and received last year.[Tampa Bay Business Journal, Dec 29]

When to Sell. In case you don't buy and hold, When skies seem Caribbean Blue become a seller: like when you hear statements that the Internet will change the world as we know it, that companies will double their investments in technology over the next several years, etc., etc. [D Gerstman, WSJ Chat Group] Should the same standard apply to judging when it declines SBIR proposals as out of touch with reality?

Superconductor Superfolly With the three public superconductor companies all down 70% from their IPO prices, why did the government pour $9M of SBIR into a fourth company, HYPRES (Elmsford, NY) in the past two years? In '96 HYPRES got $5.5M and in '95 another $3.3M . Would NASA and DOE have taken a different view if they required hard evidence of market interest in a company that already had $6.3M through 1994 in a technology that can most charitably be described as a research long shot? Earlier, DOD provided $3M from AF and BMDO (that was me) with the most recent Phase 2 in 1993. Since then NASA and DOE have provided even more sugar. (SBA does not provide a convenient database from which the public can ask such questions as how much any one company has received.) Let's guess that: 1) NASA and DOE selectors don't see SBIR as a commercial program anyway (although headquarters is obliged to pretend that it is); 2) government guys don't have any feel for markets; 3) the government agrees with the company's repeated arguments of good flowing from research (which is true but irrelevant for competitive selections). And so on.

Behind every successful IPO are hundreds of earnest ventures in which people gave up large portions of their lives only to be crushed by the competition or a bum marketing plan. Venture capitalists mirror this work ethic - screening thousands of companies to find the few that may succeed is not for the faint of heart or mind. [Jonathan Littman, Upside, Jan 98]. Was SBIR invented to succor the many whose new technology has no commercial value, usually because of cost, but require that the government pretend that it does have such value? Is the taxpayers money wisely "invested" in commercially valueless ventures? Or was SBIR just to be a replacement way to fund small company R&D for government? Wouldn't you like to know early-on, before you incur a big opportunity cost of an SBIR, that your darling idea has no future? VCs are good at delivering the message. The government won't tell you (because it neither knows nor cares). Stay tuned for the 1999-2000 debate but don't expect the politicians to admit any ugly truths.

There is no social or economic problem of which a president can say, "That's not the government's responsibility." And so, naturally, the government is blamed when problems are not solved. This irritates everyone. People who opposed the government's intervention in the first place are irritated, but so are the people whom the intervention was intended to help, because whatever the government does is never enough. [Charles Murray, wall Street Journal, Dec 23] So, want more SBIR because if a little but is good a whole lot is better? Or because not enough companies get to participate (whose fault is that?)? If you want to get political about SBIR join SBTC Murray also notes that the proportion of people who think government officials ignore what ordinary people think rose from 35% in 1952 to about 60% in recent years. Part of that comes naturally from the rising expectation that government can solve problems that, in fact, it cannot solve. If you remember that last presidential campaign, you'll notice that even the less-government candidate wanted the government to solve social problems like schools and teen-age drug abuse, and to intrude into prayer and abortion with, of course, 15% fewer taxes paid. Politics, they are what we let them be.

Whistling Past the Graveyard: We Have No Competition. Commentary at Silicon Investor chat room: In reading the latest S-3 filing for Kopin's secondary offering, I couldn't help but notice the fact that Kopin states that they have no competitors to their particular technology. What? I am fairly sure that this comes as a great surprise to the many micro-display companies out there, Colo. Microdisplay, SVision, Siliscape, TFS/NSM, to name but a few. I liken it to a small company coming out with a titanium-bodied automobile and telling their potential investors that they have no competition. Whatever you're doing, you have competition and to say you have none in your SBIR proposals or SEC filings brings a snicker to anyone whose judgment you would trust on your proposal. SBIR proposers do it regularly, at least those who even bring up the subject of competition.

Buffalo SBIR: Good News or No News? Buffalo area high-tech companies received more than $6 million from federal agencies for research and development last year. Fifteen companies in Western New York participated in SBIR program. Several area companies received multiple awards in 1996. Laser Photonics Technology at the University at Buffalo Foundation Incubator at the Baird Research Park in Amherst received three awards worth $916K. Amherst Systems received nine SBIR awards totalling $1.8M; Advanced Refractory Technologies (ART)received five awards worth a total of $900K; and PCB Piezotronics received two worth a combined $900K. Akers Associates, Analysis and Simulation Inc., Appolo Research, Immco Diagnostics, Lyotropics, Material Solutions I, Snyder Seed Corp., SR Environmental Monitors, Taylor Devices Inc., The Electrosynthesis Co., and Veritay Technology Inc. [Buffalo Business Journal, Dec 22] How are these companies doing as investments? Amherst Systems, has had something like $15M of SBIR and still has sales of only $17M, mostly more government R&D - sign of a nice research house. Since government R&D sales carry only about a 6% profit margin, Amherst investors (your tax money) must be getting a terrible ROI. Other notable lifetime totals: ART $5M and Veritay $6M.

Glass: Industry of the Future. Having convened an industry panel of 38 experts from industry and academia, the Department of Energy is going to help with - you guessed it - a subsidy. Four R&D contracts (of 50 proposals) because Naturally, new technology plays a pivotal role in helping US glass manufacturers compete effectively in the world market, says Theodore Johnson, who helped spearhead the workshop. [Technology Business, Nov/Dec97] Aren't buzzwords grand? Does the glass industry need a subsidy because it is an infant industry in an infant country? If the US government subsidizes commercial industry, what moral standing does it have in arguing against government subsidies by its trading competitors? Will the government invest in the most efficient projects? Of course not, private capital has already done that. Why the Energy Department to succor the glass industry? On the rationale that glass uses energy, the Treasury Department could just as well have been the manager. Should the nationalistic free-market Republicans love or hate this subsidy? You can bet the four recipients will find a way to love it.

Wonder why the government sometimes funds basic research with its SBIR? Because it can claim high risk while actually taking no risk since it has a can't-fail objective - knowledge. And, indeed, the risk is high, not that the project won't gain the intended knowledge, but that anyone will care afterward. Remember, the government wants to pick your brain and doesn't care whether you survive as a company. Why should it? You gave up rights to the technology for government purposes. Lots of companies are waiting to fill any void left by your death.

Schwartz Electro-Optics (Orlando, FL) has 150 employees and $20M annual revenues split 70-30 government-private. Bill has had $17M in 100 SBIR contracts from which he has derived $25M of product sales and spends no more than $750K a year of his own money on R&D. Anyone wanna calculate Schwartz's rate of return on the SBIR investment since 1986? Think it'll look like something any sane investor would sink money into? If not, there's something awry in the government's running SBIR as an investment vehicle. But, of course, both politicians and beneficiaries call any subsidy an investment. [facts from Milton Chang's column in Photonics Spectra, Dec 97]

Scott Wallsten's full critique of SBIR is now public. His data verify his hypothesis that government funds stuff that would have been funded anyway and therefore plays no useful role in advancing the cause of new technology. The champions are screaming foul but they have not produced an economically credible counter-case. They have limited themselves to the argument that some good has been done with the $7B and avoid anything like a control group. There is a counter-argument to be made based on the knowledge that most of government does not act as hypothesized by Wallsten who assumes that the SBIR officials follow the spirit of the law which most do not.

Heroes or Hogs
(Oct 24) Speaking of the hooked....

The top 1996 winners
1.$10.3M....Foster-Miller (1)
2.....9.3M...Physical Optics (3)
3.....7.1M...Creare (2)
4.....6.0M...Spire (4)
5.....5.9M...ATMI (18)

6......$5.7M.......HYPRES (32)
7......$5.5M......CFD Research (40)
9......$4.6M......Lynntech (33)
10....$4.6M......SDL (435)
Number in parenthesis is the firm's ranking thru 1994. Which raises the question: what is the government's intent that would keep any firm on the top of a list that in principle gives only start-up money?

Utah's Centers of Excellence Program helped create seven new companies and more than three dozen new jobs during its budget year ending in June, according to a report issued this week. The program aids in the commercialization of technologies developed at colleges and universities in Utah. It funds individual R&D centers at the University of Utah, Brigham Young, and Utah State and Weber State universities from which new private companies emerge. Since 1986, it has helped create 123 companies and 1,050 jobs that pay an average of $35K a year, according to the report. The state has allocated $26.8M to the program. ... For every dollar of state funds the individual centers receive, they must then receive $2 from private and federal sources, he said. In the fiscal year ending in June, centers attracted much more than that: $20M of outside funding, or $8.40 for each $1 in state funds it received. [L Mitchell, Salt Lake Tribune, Dec 17] Which raises the usual questions: did the state money really have any effect on state economy? Or would all the jobs have happened anyway? And is it just a subsidy to the university?

Tech is a four-letter word. Everywhere you look in high-tech land there are bodies. On Friday, Electronics for Imaging crashed 62% after saying it would not meet analysts' expectations. Among the Massachusetts tech stocks, Teradyne and PRI Automation, both test equipment makers, have seen their shares cut in half; Unitrode is down 60%; Digital Equipment down 27% since early November. The list goes on. The Morgan Stanley high-tech index was down a stunning 13 percent in four ugly days last week. There's money to be made in this panic. Clearly scared investors are sometimes dumping the baby with the bath water on their way to the exits. But how to separate opportunity from a painful tax writeoff a year from now? [Steve Bailey & Steven Syre, Boston Globe, Dec 16] At this moment in history, there is nothing in our financial world that it's better to be than a venture capitalist. There are perhaps a thousand VCs in the world and tens of thousands of VC wannabes. These days VCs condescend to mere Wall Street investment bankers. Investment bankers, they say, don't understand business. The condescension sticks mainly because venture capitalists make more money than Wall Streeters. A lot more. [Michael Lewis, Slate, Dec 17]

The politics of subsidy reform is always contentious. The beneficiaries are well organized, and many of the subsidies go to western states where there is bipartisan agreement to defend them, to the death - in the name, ironically, of the rugged independence said to be typical of the western way of life. [The Economist, Dec 13] An exact analog of SBIR in the land and water subsidies to the Western miners and ranchers. Bill Gates always believed that the role government should play in helping high-tech companies is to leave them alone. ... The company employs just four people in its Washington government affairs office. ... And McChesney writes that "The overriding lesson of the [economic] rent-extraction process is that politicians are interested in any stock of immobile capital or wealth from which they can extract a share." Companies have little choice but to pay extortion money to the political powers. [J Glassman, Washington Post, Dec 16]

DOD's STTR Open (Dec 3) The Defense Department released its 1998 STTR solicitation for the Phase 1 part of its $30M spending (oops, investing). As a vehicle for getting non-profit new technologies into commercial markets, it gets a mixed review. The four Army topics must have been written by the people who fund universities; they seek the usual university research with little prospect of any commercial impact; just the usual happy words about a better world from research. Most of the Navy topics smell the same. Air Force has an interesting melange that could actually turn into something commercial IFF Air Force picks the right kind projects (in all SBIR/STTR, the acid test lies not in the topics, but in the winners picked). DARPA, like AF, has many good options for dual-use technology (including one so useful and so specific that Hewlett Packard must be already doing it and indeed one reference is HP's handbook). BMDO has its usual open call for innovation in the broad fields of sensors and electronics and photonics. Proposals due April 15 and be sure not to send them to the IRS with your taxes. Return to Index When is it irresponsible to spend too little on research? Most corporate executives will give you a blank stare if you ask them this question. That's because they probably think it is irresponsible to spend anything on research. [N Myrhvold, Fortune, Dec 8] So, you think Microsoft just sells software. Microsoft has a research department to rival the best in America and hires only the best to staff it. The DOD people who decide SBIR think it is responsible to spend money on research, provided somebody else does it. DOD tried the same attitude when SBIR was being invented in 1982 - nice program; include us out.

An SBIR "winner" asked Milton Chang a question: I have developed, with SBIR funding, a technology for industrial diagnostics. In three years I predict annual sales of $3M, and I plan to make these instruments for $45K a pop. I can't convince anyone to fund me to develop the product. Where do I go from here? [Laser Focus World, Nov 97] Milton ended his gentle answer by suggesting teaming with an existing company in that market. A classic case of how companies go wrong with SBIR, with government abetting. This winner believed the linear model: research, development and productization (all funded by OPM), followed by sales, profits, and wealth. And the government let him do it by handing over the money without any business reality checks.

Scott Wallsten's full critique of SBIR is now public. His data verify his hypothesis that government funds stuff that would have been funded anyway and therefore plays no useful role in advancing the cause of new technology. The champions are screaming foul but they have not produced an economically credible counter-case. They have limited themselves to the argument that some good has been done with the $7B and avoid anything like a control group. There is a counter-argument to be made based on the knowledge that most of government does not act as hypothesized by Wallsten who assumes that the SBIR officials follow the spirit of the law which most do not.

Said one federal SBIR overseer about whether SBIR should be doing MULTIMEDIA NUTRITION EDUCATION FOR CAREGIVERS, don't be too quick to dismiss the value of caregiver education. Caregiving involves ever greater numbers as our population ages and lives longer. The answer implies that anything good done by a small firm merits an SBIR. What the answer does not say is how such a project got to be one of the top SBIR proposals. Most SBIR overseers in any agency would have given the same answer; their purpose, after all, is to rationalize what the reclusive decision-makers do. The answer also implies that economic return doesn't dominate that agency's SBIR criteria.

A DARPA SBIRWhile interest in parallel computing systems remain high, widespread proliferation and acceptance of these systems has not occurred. The basic problem facing parallel computer users is a lack of a common, portable parallel programming system that spans the diverse MP systems now available....This proposal will research and investigate the issues regarding a retargeting of these PGI compilers for the JVM environment. ... Discovery as to any performance trade-offs will be the most critical factor in the analysis. In other words, DARPA so wants parallel computing to be adopted that it will spend its money on such fishing expeditions while it waits for some breakthrough that makes parallel computing economic enough for the real world. Such tenacity pervades DOD. For hopeful proposers: working on the technology du jour carries more weight than degree of innovation in some other technology. If you think otherwise, just try sending a breakthrough proposal in a topic not listed in the solicitation. DARPA's award list for last year also has several of the usual commercialize-is-always-in-the-future-tense suspects which means a premium on knowing how to tweak DARPA's knobs.

What's the Air Force looking for in its SBIR? Among other things: service with a smile, yours. Sometimes, one-off service such as from last year: A Design Improvement Study for the CFTF Centrifuge: The CFTF Centrifuge at Armstrong Laboratory will be a useful tool for crewmember training and human factors research for future high performance aircraft. ... This proposal presents a plan for a preliminary design of modification for the centrifuge and a software model capable of predicting the effect of the modifications on the rider. But, once again, selections govern program success, not topics, as the AF wangled a one-off, in-house project for engineering. If you want such a service contract, though, you will have to schmooze the AF engineers.

(Dec 1) Out of its 49 Phase 1 SBIRs, OSD made 21 awards of the usual simulation and software stuff with little or no commercial potential. (OSD is a subset of DOD.)
The topic writers and proposal judges in OSD could stand to understand the culture of the software world as portrayed in such books as Po Bronson's novel The First $20M is Always the Hardest and RX Cringley's Accidental Empires.

Some of the other 28 awards (which include many usual suspects including the ever-present Foster-Miller) could have commercial value, although such value does not emerge easily from the published abstracts. Proposers leave it to the government technical expert's view of the competition which is often colored by the briefings heard from those proposers who schmooze the experts. Return to Index

For the next go-round (solicitation 98.1) OSD says: The Army, Navy and Air Force hereafter referred to as DoD Components acting on behalf of the Office of Technology Transition in the Office of the Director, Defense Research and Engineering .... The DoD Program presented in this solicitation strives to encourage technology transfer with a focus on advanced development projects with a high probability of commercialization success, both in the government and private sector.. So, in principle, OSD seeks transitionable technology - a claim hard to square with its selections unless you believe in rubber dictionaries. To bolster its claim, DOD has forced the services to predict the commercialization in the solicitation, a job that inverts the roles of government and company. In practice, the Services capture the money and pick the proposals they like that fit their R&D objectives, commercialization notwithstanding. Meanwhile, OSD pretends it is doing commercialization without having to pay the price of picking winners and making enemies.

If One is Good, Two is Better
(Nov 25) 13 As an illustration of Wallsten's point, consider NSF's awarding an SBIR for a new version of PersonalNews that includes a new adaptive feedback mechanism incorporating the user's explicit and evolving preferences. The research will focus on designing the prototype and user-testing the new functions. The results from this testing will be used to develop a specification for the next phase incorporating scalability and performance requirements. The approach will be to build upon the success of a prototype of a personalized information agent called KidSource OnLine PersonalNews. . Sounds suspiciously like a government sponsored competitor to push technology vendors like Point-Cast, an already highly competitive industry.

Government confusion about government's role. It hands high-tech innovation money for a product improvement of a product that could easily respond to market demand if there were any. It will almost surely succeed technically, and then the only question will be whether a market can be found. Since the first version is already extant, won't the second be targeted at the same market? And if all that is true, why does the government need to get involved at all except to provide free money as a substitute for true capital investment. NSF and the company will exclaim in some future Congressional hearing about all the wonderful benefits that are flowing from the SBIR. No one except the curmudgeons is likely to note that it was a waste of government's power.

Typical Navy SBIR . Foster-Miller has conceived of an innovative approach to grow uniformly doped large diameter PMT-PT single crystals either by itself or encapsulated in a porous single crystal sapphire skeleton.... Foster-Miller's process has the capability of growing single crystals at relatively low temperatures not possible with current crystal growth processes.....The Phase I program will involve growth of PMN-PT single crystal specimens and characterization including X-ray diffraction, dielectric and piezoelectric measurements. The Phase I team includes key researchers from Penn State University who are doing pioneering work in PMN-PT materials development under Navy funding. Foster-Miller will provide five specimens to the Navy as deliverables. Some clues from this typical abstract of the national champion SBIR winner: 1) modification of existing process (lower risk), 2) "will involve" as a Phase 1 objective (bureaus love process), 3) deliverables (Navy loves touchy-feelies); 4) no mention of any commercial motivation (especially cost). FMI won three of the 72 awards by NAVSEA last year. The abstracts for the other two awards repeat the formula except for the deliverables. Wanna stroke the Navy? Study the veteran's moves and moan as the grey-beard veteran keeps repeating grades in the SBIR nursery school and occupying seats that you might have had.

Smaller than a TokamakWhen the AF asked for ideas in space craft power, it got a question through SITIS Are you interested in a new approach toward energy generation through nuclear fusion? The new approach would lead to a device far smaller than a tokamak. A: ...pending reply... Optimists everywhere. The first problem is that the full size tokamak doesn't deliver fusion and the second is the minimum weight of a device for just the first watt and the third is "how gullible do you think the government experts are?". Expect a polite AF reply. Same apparent source asked about fusion for rocket propulsion topic Last year we submitted a proposal under this topic for a fusion based energy source. Is there interest this year in a similar proposal? A: I am not aware of the submission or our response. Such a proposal must relate to safe, scaleable, and affordable propulsion. A convenient memory loss. If you are thinking about such grand ideas, you need a convincing figure of merit and some credible way to get there. Grand theoretical schemes don't convince military experts. They've heard lots of fusion dreamers; don't you sound like one.

New NSF Power Technology.. PowerWorld Corp. will develop a new software package to help the electric power industry understand the issues involved in market power, the ability to raise rates profitable over a period of time. This is a key issues in the deregulation of the utility industry, which will result in an unbundling of the traditionally vertically integrated untilities, into relatively independent entities. Hear anything new there? Think the electrical power industry can't do or commission such work by itself? Can NSF find a power industry executive to stand up in public and claim the inability to do or commission the analysis? The cozy arrangement of a company in a university town exploiting a university modeling project funded by a government organization whose mission it is to support university research. Is that what Congress had in mind for SBIR? As a contrast to the NSF SBIR for profit margin analysis in the electric utility industry, consider a typical Phase 2 from BMDO. The Phase II program is in two parts: 1) Demonstration, using BMDO funding; and 2) Development, in which BMDO funds are matched 1:1 by commercial investment into Picolight's facility. Part 1 forms a sequence of growth and fabrication advancements that will establish the long-wavelength VCSEL manufacturability. Part 2 will develop the long-wavelength VCSEL into a manufacturable pre-production model.
No blather about redeeming social value, just prove it works in Part 1 and then move toward economic markets in Part 2. If Part 1 fails, bye-bye Part 2; why pursue something proved not to work (except to keep hobbyists in groceries)?

Army's Muddled SBIR
(Nov 24) The Army gave 199 conservative Phase 1 SBIR awards to 167 companies. The favored theme was calculation - 49 models and simulations - which can hardly fail since they take neglibible risk. Unfortunately, the rewards will be only incremental advances. The usual suspects also did well: Foster-Miller and Cybernet Systems, five each; American GNC, POC, CFD Research and SPEC three each. Those guys know the Army's conservatism. Models of modesty will do things like:
Aircrew management device software, ,
and assist the Battle Damage ,
and a basic research project that will develop a conceptual model for soldier decision- ,
and This proposed research draws on classical Bayesian Inference combined with powerful new tools called Quasi-Axiomatic Theorem (QAT.
Innovation? What's the Army doing with its SBIR? With its 9% selection rate after 14 years it keeps proposers in the dark about what it wants.

By and large it's mostly ordinary R&D: slogging away at such as battery components, speech recognition, specialty (and dear) composite materials for specific Army uses, gun barrel erosion from high speed projos, POC's long string of optical products after $30M of SBIR already, combustion studies, and systemization of existing technology to exploit advances in chip compression. Return to Index

But there are some bright spots in the gloom. Cree Research (whatever it does), an improved process for red cell glycerolization prior to freezing utilizing a closed, sterile disposable set, and New Acousto-Optic (AO) sensors will be produced that will 1) offer at least a 5x increase in the field-of-view of current AO sensors and 2) cover a wide range of frequencies (500kHz-l5MHz), and the application of gray scale mask technology to etching high-efficiency DOEs in InSb and InAs substrates. What should an Army proposer do to increase its chances? Hire a spy to find and parse your Tech Area Chief. These elusive and omnipotent creatures live in the dark. They make their decisions on criteria that proposers are not allowed to know, like "program balance". Nor do they have to defend their decisions in any public forum, nor do they debrief the 91% losers.
Wait! Let's judge by results and not by Phase 1 selections which is just input analysis. The Army has results - a glossy pamphlet Commercialization 1997 which lists $240M sales resulting from Army SBIRs. But only five companies have had sales over $10M and $242M sales doesn't economically justify something like $1B of Army SBIR to date. If the average profit margin were as high as even 20%, that's only $50M return or 5% in 14 years or about 0.4% per year to the company, with a much lower return in tax dollars to the investing government, in a world where the average VC gets a 40% annual return.

The Law Doesn't Suit Politics Sen. Hollings wants the White House to block Westinghouse's sale of its gas turbine business to Siemens of Germany for $1.5 billion, saying the technology was developed with taxpayer subsidies and that he fears the sale could threaten national security and economic welfare. [Wall Street Journal, Nov 23] Economic nationalism. SBIR winners, beware of the same treatment. Even though the law says you own the rights to your technology even though the government paid to develop at least art of it, politics can try to override the law without ever passing a new law (which is very hard to do. Government's Crystal Ball says Vigorous demand for computers and other high-tech goods should keep the U.S. economy growing next year despite consumer fatigue and a deteriorating trade balance, the government forecast Friday. In addition to computers, hot industries for 1998 are likely to include aerospace, dental equipment and management consulting, the Commerce Department said. [LA Times, Nov 22] What's the biggest stumble in government forecasts? Extrapolation and conventional thinking, by people with no money at stake and no penalty for getting it wrong.

Having claimed victory with its technology policy of sponsoring business with state subsides, Maryland now wants $3.5M to train workers to for the new high-tech jobs. But says the Maryland official, we don't have a labor shortage, we have jobs needing people and people needing jobs and we just need to train them first. No doubt the official would deny adding fuel to a fire with the first subsidy. [story from Baltimore Business Journal] Ah, well, state officials have to be seen doing something.

Double Your Money The research community has the answer - more money. A coalition of research orgs says the US should double its research spending in the next ten years. Of course, what do such coalitions always say? And where is the money to come from? Not our problem. They could try the pennies-a-day line from late-night TV advertising. The three paragraph sermon from the mount Unified Statement on Research uses the usual words "lifeblood", "essential", "secure health and prosperity", and "Twenty-First Century" to make its case for dipping into the federal trough. Somehow, pleaders think the world will change on Jan 1, 2001. Every public pleader says the same thing and leaves it to Congress to find the money. They could at least have made some defensible offering of the investment merits of such spending instead of treating scientific research like a religion. Congress needs no help with worthy causes on which to spend money.

New NSF Power Technology.. PowerWorld Corp. will develop a new software package to help the electric power industry understand the issues involved in market power, the ability to raise rates profitable over a period of time. This is a key issues in the deregulation of the utility industry, which will result in an unbundling of the traditionally vertically integrated untilities, into relatively independent entities. The software package developed will contain effective visualisation techniques designed to facilitate the comprehension of market power issues by those who do not have a background in electrical power engineering, and will be based on a user-friendly and highly interactive simulation package developed by researchers at the Univ. of Illinois Power and Energy Systems Group under the direction of Prof. T. Overbye. Hear anything new there? Think the electrical power industry can't do or commission such work by itself? Can NSF find a power industry executive to stand up in public and claim the inability to do or commission the analysis? And that's just Phase 1; think how long such a project can be dragged out in Phase 2. The cozy arrangement of a company in a university town exploiting a university modeling project funded by a government organization whose mission it is to support university research. Wanna guess that NSF is already supporting the university professor who developed the model that this project will improve? What improvement will come next? Is that what Congress had in mind for SBIR?

What's the Air Force looking for in its SBIR? Among other things: service with a smile, yours. Sometimes, one-off service such as from last year: A Design Improvement Study for the CFTF Centrifuge: The CFTF Centrifuge at Armstrong Laboratory will be a useful tool for crewmember training and human factors research for future high performance aircraft. The centrifuge features an acceleration of performance that is unmatched by other Air Force facilities, however, it lacks a set of powered gimbals that would allow positioning of the rider with respect to acceleration. With these additional degrees of freedom, riders could be exposed to an acceleration environment more representative of high-performance aircraft. To provide the additional degrees of freedom, this proposal presents a plan for a preliminary design of modification for the centrifuge and a software model capable of predicting the effect of the modifications on the rider. The software would enable scientists to specify a time history of desired crewmember accelerations and compute the required CFTF joint motions and actuator signals to best create a desired motion. At some point in the AF's solicitation, it had to get its topics cleared by the Secretary of Defense's Office which, in principle, vets topics for commercial potential. But, once again, selections govern program success, not topics, as the AF wangled a one-off, in-house project for engineering. If you want such a service contract, though, you will have to schmooze the AF engineers.

(Dec 1) Out of its 49 Phase 1 SBIRs, OSD made 21 awards of the usual simulation and software stuff with little or no commercial potential. (OSD is a subset of DOD.) For example, The Defense Modeling and Simulation Office (DMSO) has developed the High Level Architecture (HLA) as one of the principle components of a DoD-wide Common Technical Framework for modeling and simulation (M&S). Unlike previous distributed simulation technologies such as DIS and SIMNET, HLA provides federation developers, via the Object Model Template (OMT), the means to define the structure and format fo the messages passes between the HLA federation members (federates). This flexibility of HLA, along with its support for dynamic multicasting, transfer of ownership of object attributes and other advanced capabilities, presents the consumers of HLA not only with unprecedented power, but also a new set of technical challenges in planning and building distributed simulation systems. In order to provide the HLA user community with a complete suite of tools for performing HLA federation design and planning, AEgis Research wil investigate developing tools under this SBIR for supporting concept Analysis and Federation Design. In addition to these two tools, AEgis will inestigate augmenting the Object Model Development Tool (OMDT) with a powerful scriptable editing tool that allows users to specify their own rules for automatically editing HLA object models. Sense any life in such prose, even allowing for a need to protect real secrets from competitors even if it is public money at stake? No doubt the company believes its blather and hopes to convince its Phase 1 funders that if a little it is good, a whole lot is better.
The topic writers and proposal judges in OSD could stand to understand the culture of the software world as portrayed in such books as Po Bronson's novel The First $20M is Always the Hardest and RX Cringley's Accidental Empires. The people who pick these projects for SBIR either have no strategic vision for linking SBIR to commercial markets or they don't care. The internal forces in bureaus actually work against strategic vision since the easiest route for all involved is to de-centralize the SBIR and let the various low level offices do whatever they want. Even in the Secretary's Office (OSD) this decentralization overrides any market-oriented strategy for SBIR.

Some of the other 28 awards (which include many usual suspects including the ever-present Foster-Miller) could have commercial value, although such value does not emerge easily from the published abstracts. One mentions a Fast Track intent which implies market value. Abstracts typically do not discuss competitive advantage mostly because proposals do not do so. Proposers leave it to the government technical expert's view of the competition which is often colored by the briefings heard from those proposers who schmooze the experts. Return to Index

For the next go-round (solicitation 98.1) OSD says: The Army, Navy and Air Force hereafter referred to as DoD Components acting on behalf of the Office of Technology Transition in the Office of the Director, Defense Research and Engineering .... The DoD Program presented in this solicitation strives to encourage technology transfer with a focus on advanced development projects with a high probability of commercialization success, both in the government and private sector.. So, in principle, OSD seeks transitionable technology - a claim hard to square with its selections unless you believe in rubber dictionaries. To bolster its claim, DOD has forced the services to predict the commercialization in the solicitation, a job that inverts the roles of government and company. In practice, the Services capture the money and pick the proposals they like that fit their R&D objectives, commercialization notwithstanding. Meanwhile, OSD pretends it is doing commercialization without having to pay the price of picking winners and making enemies.

An SBIR "winner" asked Milton Chang a question: I have developed, with SBIR funding, a technology for industrial diagnostics. In three years I predict annual sales of $3M, and I plan to make these instruments for $45K a pop. I can't convince anyone to fund me to develop the product. Where do I go from here? [Laser Focus World, Nov 97] Milton ended his gentle answer by suggesting teaming with an existing company in that market. A classic case of how companies go wrong with SBIR, with government abetting. This winner believed the linear model: research, development and productization (all funded by OPM), followed by sales, profits, and wealth. And the government let him do it by handing over the money without any business reality checks. Sucka. The question didn't mention competitive advantage, ROI for the customer, ROI for the investor, all questions to which the government should have forced an answer before handing out the money for what it looks like will be nothing more than a hobby. DOD started doing so with its Fast Track for 10% of its Phase 2 money, a procedure attacked by the hobby shops who win regular SBIR and go nowhere. When it comes to SBIR, be careful what you ask for, for you could easily win an award that lures you down a dead-end road. Get some reality checks on your vision.

DARPA's SBIR Winners
(Nov 26) DARPA awarded 69 heavily systems Phase 1s in its spring 97 SBIR. Old ideas rehashed, a couple of entrepreneurial companies, and a search for a quick answer dominate. Only one multiple winner; you guessed it - Foster-Miller with three. Topic 51 tries with three awards to beat the second law of thermodynamics with low temperature energy harvesting. Five awards in Topic 88 says DARPA wants an answer for buried things like facilities in Iraq but either got no innovative proposals or ignored them in picking well-worn companies with well-worn concepts. Two of the three awards in Topic 81, robotic navigation, went to government-minded public companies - Irvine Sensors and SatCon Technology - for relatively straightforward applications of existing technology. Many more SBIR veterans than rookies which suggests that schmoozing DARPA's managers pays a bonus. The bad news for DOD is that if DARPA isn't reaching beyond its grasp for new ideas, who will? Where will the new concepts of the next decade come from? The private sector? BMDO? Europe? Recognizable entrepreneurs in Aguila Technologies, ATMI, CCVD, and potentially new ones in Terabit Technology, Piezomax Tech, Murray Hill Devices, and Anivk Technologies, if one judges by the sound of the technologies.

Army's Muddled SBIR
(Nov 24) The Army gave 199 conservative Phase 1 SBIR awards to 167 companies. The favored theme was calculation - 49 models and simulations - which can hardly fail since they take neglibible risk. Unfortunately, the rewards will be only incremental advances. The usual suspects also did well: Foster-Miller and Cybernet Systems, five each; American GNC, POC, CFD Research and SPEC three each. Those guys know the Army's conservatism. Models of modesty will do things like:
Aircrew management device software, based upon USAARL code and information contained in the "Leader's Guide to Crew Endurance" will be refined and optimized for inclusion in an improved existing activity monitoring device,
and to assist the Battle Damage Assessment (BDA) operator in performing timely damage estimates for physical and functional damage assessment, develop an Automatic Battle Damage Prediction System (ABDPS), which will have the following features: ABDPS will not only predict physical damage and functional damage independently, but will also predict the coupling of physical damage and functional damage,
and a basic research project that will develop a conceptual model for soldier decision-making in urban settings and use it to create individual training programs,
and This proposed research draws on classical Bayesian Inference combined with powerful new tools called Quasi-Axiomatic Theorem (QAT) to provide a comprehensive and adaptive situation analysis decision aid.
Innovation? Isn't any R&D innovation? Commercial appeal? Not our problem. What's the Army doing with its SBIR? With its 9% selection rate after 14 years it keeps proposers in the dark about what it wants. With its conservative and military projects it says it does not believe that small business can make innovation happen (or that it doesn't want disruptive innovation anyway). You can just hear the General Officer Steering Committee telling the Tech Area Chiefs not to threaten Army doctrine with innovation.

By and large it's mostly ordinary R&D: slogging away at such as battery components, speech recognition, specialty (and dear) composite materials for specific Army uses, gun barrel erosion from high speed projos, POC's long string of optical products after $30M of SBIR already, combustion studies, and systemization of existing technology to exploit advances in chip compression. It has the smell of Army using SBIR for that part of its regular R&D that can be done by small business, which is good for the particular winners (and bad for the real innovators) but a nothing for any other objective. The only economic contribution is all that money spent uselessly by the 91% who lost. Return to Index

But there are some bright spots in the gloom. Cree Research (whatever it does), an improved process for red cell glycerolization prior to freezing utilizing a closed, sterile disposable set, and New Acousto-Optic (AO) sensors will be produced that will 1) offer at least a 5x increase in the field-of-view of current AO sensors and 2) cover a wide range of frequencies (500kHz-l5MHz) (if Brimrose and Ciencia haven't already done it), and the application of gray scale mask technology to etching high-efficiency DOEs in InSb and InAs substrates. What should an Army proposer do to increase its chances? Hire a spy to find and parse your Tech Area Chief. These elusive and omnipotent creatures live in the dark. They make their decisions on criteria that proposers are not allowed to know, like "program balance". Nor do they have to defend their decisions in any public forum, nor do they debrief the 91% losers. Actually, it's the lack of honest debriefings that induces the low selection rate. Treat selection probability as a random variable (result unconnected to input) and calculate your expected value on a wholly probabilistic basis.
Wait! Let's judge by results and not by Phase 1 selections which is just input analysis. The Army has results - a glossy pamphlet Commercialization 1997 which lists $240M sales resulting from Army SBIRs. Which sounds good to a Member of Congress on a Small Business Committee. But only five companies have had sales over $10M and $242M sales doesn't economically justify something like $1B of Army SBIR to date. If the average profit margin were as high as even 20%, that's only $50M return or 5% in 14 years or about 0.4% per year to the company, with a much lower return in tax dollars to the investing government, in a world where the average VC gets a 40% annual return. So, as long as the new Phase 1s have no tangible prospects for economic return, the 0.4% compound return will continue. The Army would have done a lot better investing its SBIR in Treasury Bonds which would have had about an 8% compound annual return over the life of SBIR. Maybe one standard for SBIR ought to be an economic return that beats Treasury Bonds.

A 33% ROI
(Nov 26) If the government had taken an equity position in ATMI Inc (Danbury, CT) proportional to its SBIR over the last decade, it would have a 33% internal rate of return, says a calculation by ATMI. Of course it's hypothetical because the government doesn't take equity. But it is a measure that SBIR could use to evaluate itself. ATMI has had about $36M of SBIR and the present market value of the 8.5M shares the government would have acquired would have been $212M at $25 a share at the end of 1997. Today the stock is at 34 which puts government's virtual-value near $300M. Such a return is far higher than Treasury Bonds or even the S&P 500. Maybe the GAO or the next round of Stanford or Harvard economists to look at SBIR will use such a measure. (Fat chance of having GAO, SBA, or federal agencies do it since the result would make the government look like an economic moron.) The government could at least require companies to do such a calculation and submit the result with every SBIR proposal. (Fat chance of that, either, after the small business lobby shrieked to Congress.) It could, however, require it for all firms exceeding a minimum total of SBIR funding, say $5M.

North Carolina Capital
Southeast Interactive Technology Funds has unveiled plans for a $50M VC fund and brought aboard some prominent advisers to help it become the Triangle leader in financing information technology deals.... Southeast has gotten most of the money for its first fund from wealthy individuals. It began investing in June 1995. The new fund would be five times the size of Southeast's largest fund to date, and nearly as large as a $60 million fund planned by Durham's Intersouth Partners. However, unlike Intersouth and other prominent area VC funds, Southeast will focus on information technology.... Southeast has invested in 13 companies, including Virtus Corp. of Cary, Interactive Magic of Morrisville, HAHT Software Inc. of Raleigh, BuildNet Inc. of Durham, Accipiter Inc. of Raleigh, Total Ltd. of Raleigh and Alternate Realities Corp. of Morrisville. [Raleigh Business Journal, Nov 24] Angel investors are becoming more and more popular among entrepreneurs, prompting a Raleigh-based effort to link the two over the World Wide Web. The new effort is an outgrowth of the US Investor Network, a 2-year-old non-profit organization founded by Peter Bechtel, president of the Cactus Group of Raleigh and a former president of the Council for Entrepreneurial Development. Bechtel and partner Linda Leake are organizing a web site they're billing as a central resource center for entrepreneurs. Visitors will be able to listen to an interview with a securities lawyer, chat with fellow entrepreneurs about hot topics, bone up on the legalities of incorporation, or study winning business plans. US Investors Network, which has 106 accredited investors, will also attempt to link angel investors with entrepreneurs. The web site to come should be online by the end of November initially at $8 a month. [Raleigh Business Journal, Nov 24]

The Law Doesn't Suit Politics Sen. Hollings wants the White House to block Westinghouse's sale of its gas turbine business to Siemens of Germany for $1.5 billion, saying the technology was developed with taxpayer subsidies and that he fears the sale could threaten national security and economic welfare. [Wall Street Journal, Nov 23] Economic nationalism rears its head when political points can be made, especially in the nationalistic South. SBIR winners, beware of the same treatment. Even though the law says you own the rights to your technology even though the government paid to develop at least art of it, politics can try to override the law without ever passing a new law (which is very hard to do). If you get DOD SBIR, you will also find nationalists among the military agencies who think the law is wrong and will try to halt the export of new technology either by refusing to give you the money or by imposing some restriction, even something outside the law for as long as they can prevail.

The [Mid-Atlantic} region's new IPOs created still another group of software millionaires, as entrepreneurs at two firms reaped rewards from corporate seeds they planted 15 years ago. [Tech Capital, Winter 97]

NSF First Winners
(Nov 19) Ten of the first 25 winners of NSF Phase 1 SBIRs go to the usual suspects, the firms with an already long list of awards over the years, from Foster-Miller down. One that reveals NSF's attitude is to Scientific Systems Inc for a combustion model. What's wrong with such good stuff? Doesn't everyone want more combustion efficiency? Wouldn't combustion efficiency reduce global warming? Sure, BUT. Every university has at least two professors doing the same thing; SSI has had $9M of SBIR already for algorithm development; combustion efficiency is an endless research subject limited to incremental improvement. IF SBIR is for innovators with high impact ideas likely to make new markets, endless research, however well motivated, isn't the place to invest the money. Return to Index

Mr Army SBIR Speaker. Why after 14 years is the Army's Phase 1 SBIR acceptance rate still only 10%?, asked a heckler. Answer: Because the program's competitive, and the 10% proves it. Baloney! The Army is doing too much work to evaluate so many hopeless proposals and the small businesses are spending a lot of useless time and money writing them. Naturally the Army doesn't care how much time and money small companies waste. But even in its own interest it could cut down the criticisms of seemingly arbitrary selection criteria and the number of disgruntled public criticizers by clarifying what it really wants in a way that the prospective proposers can decently judge their chances. A clear public knowledge of the real rules would probably raise the acceptance rate to at least 30%. While such clarity probably will never appear from a system driven by frequent shifts of favor for programs and technologies, Army could for example decouple its SBIR from such gyrations and focus SBIR on its long-term interests. Fat chance.

A record number of Triangle companies raised a record amount of venture capital in the third quarter of this year, according to a new study. that 14 Triangle firms raised a total of $28.7 million in the quarter - a sign that young Triangle companies are making a case that their technology is worth betting on. ... Sixty percent of the Triangle's third-quarter venture capital went to technology-oriented firms. [Raleigh Observer News, Nov 20]

The [special tax exemption] tactic has exacted a heavy moral price, as Americans who seek tax relief are encouraged not to demand lower rates but to beg for this or that special favor from Congress - and then to show their gratitude once they receive it. [David Frum's review of Chris Howard's "The Hidden Welfare State", WSJ, Nov 19] Just like SBIR. Instead of a fair and open field for small high-tech companies in federal procurement, the companies want a set-aside program. Unfortunately, the joke is on them for despite the set-aside, they get no more business than they did before and they just find themselves shunted from one bidding window to another. Still the present beneficiaries applaud when Congress passes the SBIR and STTR laws and howl when anyone suggests how silly the SBIR law is.

In Silicon Valley alone, 11 new companies are created every week. Last year, on average a Silicon Valley company went public every five days, minting dozens of millionaires in the process. [SB Shepard, Business Week, Nov 17] Think NSF SBIR pickers consider the implications of such wealth creation? Or that private valuations for high-tech and health care companies are up 83% in the last year? Or that an avalanche of new money flowing into private finance has been pushing up price tags for the sexiest deals [Business Week, Nov 17]? If NSF did actually think about it, what SBIR policies would it adopt? Pushing more money to the already top winners still living on the handout? Depends on what NSF thinks SBIR is.

Capital Flowing to High-Techs

Georgia Deals Just Keep Coming Georgia firms get VC influx in Southeast, writes Brendan Murray [Atlanta Business Journal, Nov 17] Emboldened by the stock market and bursting with dollars, venture capital funds are raising Georgia's status as a magnet for private equity deals. Venture capitalists invested a record $87M in 24 Georgia companies in the third quarter this year, compared with $57M poured into eight Georgia companies in the third quarter of 1996, according to the Price Waterhouse National Venture Capital Survey. As a region, the Southeast vaulted past traditional heavyweights New England and metropolitan New York to the No. 2 position, behind Silicon Valley. In the third quarter, the Southeast was the beneficiary of $334M in VC, compared with $283M in venture capital funding in the second quarter this year. Among the 24 Georgia companies funded during the third quarter, 15 were categorized in the "start-up" or "early" stages. ....Nationwide, venture capital investments hit an all-time quarterly record -- $3.57B -- in the third quarter.

Seven VC deals in North Carolina.
Magnetic Imaging Technologies Inc. $8.5M; Newtonian Software $4M; Novalon Pharmaceutical $6M; Lambda Technologies $2M; Xanthon $1.7M; SciQuest $0.7M; Epigenesis $0.2M. [Triangle Business Journal, Nov 17]

Coopers & Lybrand just ranked Washington fourth among the 50 states in money committed by venture funds. ... Three software-industry veterans have raised $28M for a new regional venture capital fund that's ready to nourish money-hungry young firms in the information-technology sector. [Puget Sound Business Journal, Nov 17]

VC firms pumped about $107M into 17 Washington [DC}-area companies during the third quarter, surpassing the totals of $62M in the second quarter and $35M in the first quarter. [Washington Business Journal, Nov 17]

When it comes to raising money for start-ups, Arizona has broken into the top 10. Not bad for a state that didn't even rank in the top 20 a year ago. Venture capitalists and other investors poured a whopping$90M into Arizona start-ups in the third quarter. [Arizona Republic, Nov 14]

filling the 19,000 vacant technology jobs in Northern Virginia. The center is involved in that effort as part of the Northern Virginia Regional Partnership, which recently received $2.4 million from the state to combat the technology worker shortage. [Washington Business Journal, Nov 17] Wanna bet some Virginia and Maryland agencies want to create yet more jobs by doing what government does best - spend other people's money?

Oh, Happy Day, More STTR
(Nov 17) some VERY GOOD NEWS, says the Small Business Technology Coalition. Reauthorization of the STTR has just passed [the Congress] until the year 2001.... These champions think they actually got something. But I have yet to see any evidence of any group gaining anything. The mission agencies have fewer options on how to invest the money they would spend in small business anyway. No economic study has ever showed that the SBIR awardees did any better as a group than similar companies who never heard of SBIR. The beneficiaries, supported by SBTC, offer no useful measure of goodness (other than the target constituency got money which it would have gotten anyway). However, continues SBTC, another major challenge is just around the corner. The $1.2 billion SBIR Program comes up for renewal again in the year 2000 and Congressional hearings are expected to begin next year - we must be organized and ready. As you know, the SBIR Program is much, much larger than the STTR Program and we anticipate substantially stronger opposition from opponents of these programs. Well, fine; why should I complain of economics's being trumped by politics when I can benefit from helping companies get their spoons in the pot?

TOP 10 RECOMMENDATIONS from the 1997 Arizona Governor's Conference on Small Business:
1) conduct a small-business equity study to include women, minorities and small business. (and do what as a result?)
2) Institute judicial reform to eliminate frivolous lawsuits (against us, not by us).
3) Reduce corporate income taxes. (let somebody else pay for the state's operations)
4) Provide alternative training opportunities, such as co-ops, apprenticeships and internships, and vocational training from junior high through community college. (train our workers for us)
5) Eliminate the business personal property tax. (let somebody else pay)
6) Reduce regulatory costs for small business and create a business-friendly compliance process with an assumption of innocence. (and who will police the bad actors and clean the filthy results?)
7) Establish a mechanism to ensure that subcontractors are paid when contractors are paid by state agencies. (that's what courts and anti-fraud laws are for; we want the police for payment but not for environment protection; would the contractors see that as excessive regulation?)
8) Use state budget surplus money for development of freeways and transportation systems. (use the state's money for our benefit; how about cutting taxes instead?)
9) Equalize benefits and opportunities for small business as compared to those afforded large businesses. (and we want to be more equal than they are; equalize tax rates, too?)
10) Establish public/private partnerships for public transportation. (whatever that means) [Arizona Republic, Nov 4] What happened to the idea of a free-market economy where government provides stable taxes and laws and banking, protection against fraud and monopoly, and open trade provisions? Then the private businesses compete as best they can, each which its peculiar advantage that gives it a market position. Not for us; we want our cake and eat it too. We want subsidies while we elect solid Arizona Republicans like Goldwater and Kyl.

New venture firms in Austin Two venture capital firms plan to open offices in Austin early next year. Both InterSouth Partners of North Carolina., and Murphree & Co. of Houston provide early-stage financing to high tech companies. Intersouth, which focuses on early-stage life science and technology companies, $50M. Murphree, which also has $50M, focuses on high technology, health care, energy, telecommunications and financial services.... "We're very willing to work with companies that need $1 or $2M." [Neil Orman, Austin Business Journal, Nov 3] It's good news for Austin start-ups and bad news for the market-failure blather that underpins subsidies like SBIR. When VC's national total was $1B in the late 70s, there was some semblance of a case for SBIR (which the government fumbled away anyway in execution) but now that VC is $12B a year, the market-failure case dissolves.

Richardson high-tech incubator The Richardson (TX) Chamber of Commerce is launching the Metroplex's first incubator for technology startups. The incubator, run by a for-profit chamber subsidiary called the TelCor Technology Development Center Corp., or Startech, will make available services from at least 11 "stakeholder" companies in the enterprise. .The stakeholders, all companies either based in the Metroplex or with significant presences here, have agreed to contribute $125,000 apiece over five years to help fund Startech. After five years, officials say, Startech should be able to stand on its feet financially. Frank Kozel Jr., chairman of the chamber's board, said that while the Metroplex has attracted successful tech companies, it hasn't done as well with tech startups as other areas, such as California's Silicon Valley. Startech stakeholders will not get to decide which companies get in. Five venture capital firms, including Sevin-Rosen, CenterPoint Ventures and InterWest Partners, plan to put together a $3 million seed fund. Firms in the incubator will be able to apply for financing of about $100,000 to $250,000 from the fund. The venture capitalists, who are not stakeholders in Startech, will decide independently where they want to invest. Startech will retain 31/2% to 4% equity in each participating company to help fund itself. Startech is also slated to receive $3 million of a $78 million bond offering that the city of Richardson was to announce this week. [Jeff Bounds, Dallas Business Journal, Nov 3]

3900 New Corporations Not Enough . According to the 1997 Entrepreneurial Vitality Scorecard, nearly 3,900 for-profit and professional corporations were formed in the region in 1996, more than the area has seen in the last 15 years, says a recent study by the Center for Economic Development at Carnegie Mellon University and The Enterprise Corp. of Pittsburgh. But it is less than half the rate at which companies were formed nationally. Since businesses need to grow to a significant size before seeking commercial credit, the number of starts reflects the more successful incorporations. In 1996, the Pittsburgh metropolitan statistical area reported roughly 1,351 business starts -- 87 percent of the national rate and 95 percent of the state rate. "We're doing better, but we still need to see dramatic improvements if we're going to catch up to national norms," said Don Smith, executive director of the Center for Economic Development. The study noted two positives. A recent surge in seed financing has put the region nearly on par with the rest of the nation in money available to very young companies. And increased research and development activities at local universities, such as Carnegie Mellon University and the University of Pittsburgh, may serve as a catalyst as well. [Karen Kovatch, Pittsburgh Business Journal, Nov 3]

Inc 500 List
(Oct 31) Hardly an SBIR firm on Inc's 500 annual list. TPL (Albuquerque, NM) and E-Tek Dynamics (Palo Alto, CA). Let's see if the federal agencies or the SBA or the Small Business Technology Coalition have any excuses on how few SBIR companies make such honor lists. Scan the list.

30 Firms over $2M
(Oct 16) The rich got richer in 1996. The top names in SBIR hauled in the top amounts handed over by government. Foster-Miller (Waltham, MA), the all-time leader by a wide margin got $10.3M. At $75K per staff-year, that's about 130 people doing just SBIR. Second goes to Physical Optics (Torrance, CA) at $9.3M. Third was Creare (Hanover, NH) at $7M. In all, 30 firms got more than $2M each. Only 3 of the 30 firms are public and therefore open to public scrutiny. For the other 27 we'll have to trust government to tell us whether the investment produced the intended economic growth. And who will tell us? The people whose jobs depend on the program's continuing.

All DARPA Blue-ficiaries
(Oct 29) Xerox Corp.'s PARC says it made a blue diode laser for laser printers with 2-4x the resolution of today's 600 dots-per-inch machines to rival the world best laser printers. The lasers, expected to be commercially available as early as the end of next year, will also further transform consumer markets for audio, video and computer data storage. The Xerox announcement follows announcements by Cree Research (Durham, NC), and UCSB, all supported by DARPA. This is the Holy Grail,'' said John Day III of Strategies Unlimited, a market research firm. [facts from San Jose Mercury, Oct 28] SBIR also chases blue diode lasers with GaN and SiC in companies that should be more nimble than Xerox whose advantage is its market presence not its ability to capture innovation.

A Lively Congressional Debate on SBIR/STTR
An Economist Goes to Washington.
(Sep 5) Scott Wallsten went to a House committee hearing and sprayed the vested interests from the cold spring of truth - SBIR does no good as a business development/investment program. When attacked en masse by the administration, the beneficiaries, and the committee members, he held his ground. A mere PhD student. It was the most open public debate on what SBIR is and ought to be. When he said that the data don't support the program's claims, the program defenders said that something good happened. No, they offered no analysis of the alternatives nor any metrics for overall program evaluation. Scott said, so what, the good would have happened anyway. After all, he said, the Defense Department knows what it needs and would have bought the great product anyway. (What could the administration say then? Oh no, we wouldn't?) The defenders then shifted from commercial spinoff to a revisionist history of the program's goals. Better R&D for the government's needs, said SBA rep Dan Hill and long-time program advocate Ann Eskesen. Well, Mr Hill, asked Mr Davis (VA), since it's such a good program, how many agencies have voluntarily started an SBIR or STTR program? None. Right, said Scott, every agency that could pulled out and the agencies have argued against the program whenever they were let loose. Well Ms NIH, asked Chair Morella, would NIH have an STTR program if the mandate were removed? Mumble.
Prospects? Don't worry, Wallsten didn't do much damage to STTR's political prospects. Subcommittee chair Morella predicted a re-authorization of STTR and a re-look at the rationale. Wallsten didn't undermine STTR except by analogy to SBIR. But SBIR was put on notice that it must clean up its rationale before reauthorization just before the next presidential election. Not a word about more money. Instead, the advocates must now argue that SBIR does a lot of good while dodging questions about cost/benefit just as Republicans hound other programs about cost/benefit. Does it do $1M worth of good for every $1M spent, or where does the law of diminishing returns overtake it? Would doing nothing do just as well? Next time, the free-market Republicans may invite some other people with hard data instead of just market theorists. The more such data appear, the harder time the advocates will have sounding like more than "my fair share". And if it is just "my fair share" how can they avoid pressure for devolution to the states? Their case for national competition only washes if there is clear national benefit with accountability for ALL the SBIR money and not just the good results.

A Perfect SBIR Investment
Our first product has been introduced by BIGINS at a semiconductor trade show. It diagnoses chips in semi-conductor fabs with a signal gain of about 20X over a conventional instrument. This intro caused OTHERINS who would previously never show us any interest to decide to send their R&D manager from their country and two others from California to discuss applications of our technology. It has been tough to get these companies to see the possibilities but BIGINS now wants us to also begin making what we developed under the BMDO SBIR to allow their detectors to obtain about 5-12X previous. This will be our second product line directly resulting from the SBIR. We have also developed another novel device much smaller than any other of its kind with large gain and a lot of other capabilities. We used the equipment from the SBIR to develop a technology for making precision molds for injection molded optics. Our largest customer for this is currently LARGEOPT but we have also done work for REALLYBIG for making fiber optic card connectors. We have had no time to consider writing any more SBIRs. We have even been considering an offer by another company to buy us. We are not yet at the point of being totally weaned from our government contract but if BIGINS lives up to our agreement, we will be by next year. I'd like to thank you for your faith in us. This company started with one guy dissatisfied with his former SBIR company's disdain for commercial markets. He got a BMDO award as much for his gumption as for his new technology. [Customer names are pseudonyms for real companies.]. Return to Index Yet, he says, we could easily fail in the next year, for example, if BIGINS reneged on their purchase obligation. This is why I am keeping OTHERINS on the hook for now. On the other and, I would like to see BIGINS renege because I could then sell more things to OTHERINS and other such companies BIGINS is not aware that OTHERINS has expressed any interest. Business is filled with twists, failures and opportunities. Yesterday, a major collaboration with another company involving a disposable blood test sensor fell apart because they could not get their part to work. We had thought that sales from that project would finance almost anything we wanted to do for the next few years so now we have to rethink our position and maybe borrow more. In May, we had a fire in the lab which nearly wiped us out. I had to borrow money to rebuild equipment. The financial set-back was not so bad but the extent of the psychological blow was unexpected. Last week we inadvertently developed a new type of wire with the conductivity of copper, the tensile strength of Kevlar, and a very high ratio of surface area to cross-sectional area. In previous years my first reaction would have been to look through the SBIR solicitation for a related topic. Now, my first reaction was to look up specialty wire companies but I called my patent lawyer and we are filing a preliminary patent first. I cannot yet call my company a commercial success but work is far more interesting than ever before. It is sort of like the Chinese curse of "May you live in interesting times." There is no time for boredom or anything other than trying to survive but I am having a lot of fun in an odd sort of way.
As for my old company, I almost never hear from them. I know they have won several SBIRs but six months ago, they told me they had no commercial prospects. Three years ago I could not have worked without getting the Commerce Business Daily. Now I do not ever look at the CBD and cannot work without contacts from the Thomas Register. Three years ago my business card file was entirely filled with government or quasi-government contacts. Now it is filled with industrial contacts and the government business cards are relegated to a box somewhere in my desk. So, with that track record, why is the government still handing SBIR to the old company that would fail any ROI test the government could devise to evaluate SBIR? Why isn't all the SBIR money going to start-ups like the two guys in San Francisco with a new software for engineering visualization? Because most of the government agencies reject the underlying premise of SBIR - get technology entrepreneurs launched toward a future market; government leans instead to competence and predictability for a world they do understand rather than alien world of entrepreneuring.

Maryland Sees a Profit
(Oct 27) "We see a lot of technology ideas come in here that will knock you over with the `Gee whiz' factor. But when we get right down to it, we want assurances that there's marketability in the technology. Maryland's handout (investment) program for promising high-tech start-ups has ,of course, job creation as one of its rationales. (Wanna bet it's the prime goal?) Now Maryland says its $5.2M investment is worth $12.2M. Like a good VC fund, most of the gain comes from just one company. Most of the numbers, I suspect, are mere hope and state only the input.
All VC funds have the same accounting problem. How the programs stack up in terms of job creation and other criteria when compared to one another is not clear, however, because they haven't been well studied, said Daphne Clones, a senior policy analyst with CED. Maryland so far tops all states in amounts of such VC-like investment. The venture capital bar is high -- the state requires a three-to-one match. The companies: Antaeus Group, Intellivax, CytImmune Sciences, QRSI, NetSolv, MetaMorphix, HT Medical Systems, Lion Pharmaceutical, Gene Logic, Meridian Medical Tech, DMV Net, Anthem Capital L.P, Osiris, Therapeutics,CIP Capital L.P, HealthWare Solutions, Visual, Guilford Pharmaceuticals. [Facts from Baltimore Sun, Oct 26]

Money Everywhere Small companies are bursting at the seams. Banks and other financial institutions are climbing all over each other to lend money. Put them together, and of federally guaranteed loans being made to Arizona small businesses. Arizona banks and other lenders made 1,194 such loans, totaling $374.7M in fiscal 1997,according to new statistics from the SBA. [Jane Larson, The Arizona Republic, Oct. 21] Every such story cuts the ground from under SBIR's market-failure argument.

An SBA economics official said: I don't know how many SBIR award winners become public companies Then how can SBA claim to know anything about the economics of small business innovation in a competitive market. If SBIR's goal is not to attract public capital to new technology, then what is the goal? It smells like SBA sees SBIR as having failed to induce commercialization and now wants to redefine SBIR success as having provided good service to the federal agencies.

Another Technology Park If you want to start a high-tech business, some public entity wants to help you on the theory that you are the future of their job force. They've heard that you are the economic engine of job creation. Albuquerque has joined the adherents of the theory, abetted in their belief by the threatened collapse of their fifty-year economic engine - nuclear weapons. A landowner group wants to make about 200 acres available for a proposed technology research park - Albuquerque Public Schools, the Department of Energy, the state of New Mexico and a private landowner. The park would serve as an incubator for high-tech companies hoping to for technology transfer with the labs. It would also serve as a home to larger research operations set up by many of the major corporations already involved with the labs. It would also serve as an political excuse to keep the labs open as a "rich source of ideas and expertise for the spin-off of new American technology, blah, blah, blah". The politicians will no doubt be expected to find the money to build the park as an "investment" when private sources don't get caught up in expensive civic boosterism. . [facts from Aaron Baca, Albuquerque Journal, Oct 16] Albuquerque acts like many jurisdictions, trying to activate high-tech industry, even though critics say that states do not know how. Says Bill Archey president of the American Electronics Association, Governors who would fight for a Japanese auto plant by cutting taxes have no idea how to work with homegrown high-tech industries. Tom Donlan [Barron's, Oct 19] says High tech has become a national driving force -- and the largest industry in America. Politicians act as though they are getting some of that pie for their voters despite gaping ignorance. They will have some big trouble, though, getting start-ups started with the policies that attract Motorola or GE. An entrepreneur in Dayton won't move to Albuquerque to start a shoestring high-tech company. Bill Gates doesn't list incubators as one of the prime ingredients for tech business though. He listed a top-flight university, open-minded large business, state government friendly without suffocating, and an educated work force. The education is something the governors could work on - and keep the federal government out of it although it would do no harm for the national parties to keep posturing.

Another myth prevalent among some agencies of the US government is that a small, poorly capitalized but technically innovative company can, with a little government help, partner with a large corporation to produce a new product. The manufacturing of the new product will result in jobs and tax revenues, goes the theory. [Claude Hayes, Technology Business, S/O97] Hayes got a little SBIR money to supplement his shoestring development of an endothermic device to stabilize temperatures. He sold the idea to Pizza Hut for delivering pizza across town at just-out-of-the-oven temps. Hayes rates BMDO- NTTC as a good tech transfer operation while he rates his hometown San Diego Regional Technology Alliance as a loser.

Politics Ever in STTR The House Science Committee wants more STTR in the have-not states (under 20 grants in 2 years). Elected representatives don't think easily of a composite national good. Meanwhile, the STTR and SBIR advocates (Rob Risser, of the Small Business Technology Coalition) want more money everywhere because they are spawning new technology for use by federal agencies. Let's do a cost-benefit analysis on these programs. Unfortunately, even now, virtually all of the grant money goes to universities rather than small businesses, despite the fact that small firms are commercializing products at a much faster rate. The SBTC trotted out some winners to testify how much good the government funds for their companies. Nor do beneficiaries think nationally, but they're not elected to a national legislature.

Sure, but insufficient. You don't base investment on cost-benefit and anecdotes and political calculation; you base it on competitive investment analysis. Says Nette Nelson, Nebraska consultant about Nebraska's "investment" program: "The program's mission quickly became dominated by politicians who wanted outcomes in jobs created.. and entrepreneurs who leveraged their constituent status with legislators when they were denied investments". Which is why, incidentally, even federal returns to SBIR are unspeakable; only the politics there is among the career bureaucrats. Witness the poor returns to state investment programs. If you're not using competitive investment analysis, you're just paying off constituencies. Politics to continue; join the chorus.

Other PoliticsDo they want nationalism or just a repeal of the laws of economics. Although Members of Congress have pretty much given up trying to repeal the laws of physics, they still think they can change the laws of economics. After Intel stepped in, for economic reasons, to save (take over) the government's lithograph technology, a few Members are so afraid that it will help foreign firms that they want to kill the deal. Bad news for them: if Intel pulls out, they will have to put up or shut up. Besides, who would they rather have running a multi-billion dollar market project : Intel or Los Alamos? Would Congress support the three stepper makers in the US who are helping stir the nationalistic pot? If Intel adopts another technology, would all the federal money become a boondoggle that Congress could not turn off once started and which would become infected with the same technology push pifffle that drapes so many government supported so-called economic technologies?

Ciencia in CT Hot 50
(Oct 13) The first Connecticut Fast 50 Awards program recognized companies with greatest revenue growth 1992-1996 which are already starting to replace the businesses that became extinct during the recession of the early 1990s, officials said. ``We here have transformed the state's economy,'' Gov. Rowland said. ``With all due respect, the dinosaurs are the previous leaders of industry in Connecticut. The technology companies honored ranged from corporate behemoths, such as Stamford-based Xerox, to tiny Ciencia, an East Hartford photonics firm. [Hartford Courant, Oct 10] Ciencia got a start as Sal Fernandez spun off a hardware business from SBIR veteran Scientific Research Associates. Its BMDO SBIRs gave its acousto-optic technology a push.

Meanwhile,an Arizona reality check. Vanguard Venture Partners left Arizona off its list of the places that Vanguard, a venture-capital firm, looks at to find promising high-tech start-up firms to finance. : "Silicon Valley", Route 128, Seattle, Southern California, Texas, Minneapolis, the Atlantic Seaboard, the Research Triangle (North Carolina), and Florida. When challenged by the home-towners, "Here you have one of the biggest state universities in terms of federal research money and yet you don't list Arizona," Vanguard replied. "Maybe the research isn't leading to commercial products or start-up ventures," he said. high-tech manufacturing generated $9.5 billion in business in 1994, according to a 1995 study published by the University of Arizona. A more-recent study found that sales of computer chips and other high-tech products helped boost the Valley to the 15th-largest exporting area in the nation. But Ulrich insisted that the Valley's high-tech scene isn't nearly as vibrant as those of many competitors.[Arizona Republic, Oct 11]

Money From Maryland
(Oct 9) Maryland passed out $50K each to five firms to develop new products in MD's Challenge Investment Program for early-stage technology companies in telecom, info tech, life sciences, electronics, and precision engineering. One state official said competition was strong: 30 proposals. Note: he didn't say how many proposals were really competitive. The companies are: Columbia Bioscience Inc (Frederick) -. analytical instruments to be improved and sold to commercial and research markets, plus marketing a line of market a line of instruments by an Austrian firm, which has had difficulty in the US market. ... LearnScape Corp (Annapolis) -. a portfolio of computer software packages for the educational and business and professional training markets.... Plan It! LLC (Columbia) - software that graphically details infrastructure of large computer databases and another software package that can determine and display the financial effect of alterations to database systems. ... Solution Technology International Inc (Oakland) - software packages for the insurance industry to allow workers' compensation claims to be processed over the Internet.... Wisdom Builder LLC (Ellicott City) - software for federal intelligence agencies, such as the Central Intelligence Agency, and law enforcement. Since more than 64 companies have been been awarded an average of $50,000. In return for the grants, the state gets rights to royalty payments. Companies that obtain $1 million or more in additional outside financing may request that those rights be converted to equity stakes. [Mark Guidera, Baltimore Sun, Oct 8] Return to Index
Maryland also handed out $930K in 18 Maryland Industrial Partnership grants. Although most of the money went to unrecognized names, two went to Bethlehem Steel and Black & Decker. Baltimore area winners were: NovoVasc, Nutramax, CEMCOM, Sterilex Corp, DEKU Enterprises Inc, Pressure Technology Inc. Others are: Atlantic Aerospace Electronics; Buford Biomedical, Inc, Claragen Inc, Dresser Industries; Genex Technologies, Hughes Network Systems, JMCA Inc, and K&L Microwave Inc., Salisbury, The 10-year-old program, which operates from the University of Maryland Engineering Research Center, provides grants for projects that match company and University of Maryland researchers. Of the list, two also have had BMDO SBIR awards: Genex and Atlantic Aerospace Electronics. [Story by Sean Somerville, Baltimore Sun, Oct 8].

For years, Keynsian economists talked about the trade-off between inflation and unemployment and how the government should "fine tune" the economy to pick the best combination. In practice, it turned out that the government was lucky to get the right channel. [T Sowell, Forbes, Oct 20] Does the government have the right channel for "helping" high-tech start-ups? Not clear, and certainly less clear the way SBIR is run in practice. If you're a start-up lured by SBIR's free money, do not assume that the government knows what it is doing for you. The agencies of government are looking out for themselves first.

NSF Bureaucrats Reign. Phase II proposals can be submitted on October 10, 1997 or October 12, 1998. Phase II proposals can be submitted to NSF up to 10 days prior to the respective deadline, but must be received no later than the deadline. If both dates are missed, a firm becomes ineligible for a Phase II award. Two ten-day windows a year apart is NSF's idea of serving a market-driven SBIR community. Which is probably consistent with NSF's preference for science projects anyway. Research has neither time imperative nor much market value.

The dream of limitless progress through government-sponsored R&D began to fade even before astronauts first stepped on the moon. [WA McDougall, WSJ, Oct 3]

Compare Two $1+M Orders
ATMI Second Order
(Sep19) Advanced Technology Materials got a second order for its complete plant setup for semiconductor makers, this time $1.4M from Taiwan Semiconductor Manufacturing Company for a complete turnkey semiconductor environmental equipment and extensive monitoring services at one of their Taiwan fabrication plants. How commercialized can an SBIR get? Return to Index
SatCon Navy Contract
(Sep 19) Another $1.5M government contract for SatCon Technology (Cambridge, MA), this time for a missile maneuvering control system. Nice present money. Where's DOD gonna find the procurement money in the next decade to buy enough to make SatCon rich? Or is the flywheel energy system so revolutionary and advantageous that the Navy will discard its capital investment in batteries and switch? That's a tall order for a conservative institution. If maneuvering missiles were commercial, though, prospects would be a lot better for making a real growth company with a long profit stream. No, don't expect your Navy to see it that way.

Investment or Donation?The nonprofit Council for Entrepreneurial Development intends to strengthen its efforts to support Triangle business start-ups now that it has raised more than $2.25 million in its first capital campaign. "I have more empathy for entrepreneurial companies that are raising money than I ever had before," said Monica Doss, CED's executive director. "It is really hard to raise money and run [an organization] at the same time." The CED's Future Focus campaign, launched early this year, raised $2.37 million in donations from businesses and foundations - [ David Ranii Raleigh News Observer, Sep 18]

We should pity those government administrators determined to "direct" science towards particular ends. You will work hard to find on these pages any successful exercise of this sort. Black, the man who made two of the most lucrative pharmacological breakthroughs of the age by inventing beta-blockers and cimetidine, a drug that fights ulcers, says that such ends were never in his head. Nurse! The syringe, the straitjacket; these people are crazy. Thank goodness! [review of "Passionate Minds" by Lewis Wolpert and Alison Richards, New Scientist, 20 Sep]

Breaking the Deal. JRH Biosciences, a Kansas-based biotechnology firm, is closing its Woodland facility, five years before the company's development agreement with the city runs out, underscoring the risk of using economic development funds to attract or retain local business. The biotech firm received $100K from Woodland in 1993 as an incentive to stay in town. JRH opted to stay, spending $4M to build a 36,000-square-foot manufacturing. The city put its $100K into public improvements like streets and sewer lines to serve the new plant. [Kathy Robertson, Sacramento Business Journal, Sep 15] When there are NO barriers (such as race or language) to moving for purely economic reasons, political divisions buy a phantom when they bribe business in interstate competition.

From the Dark of a Briefing with the Color of Authority. Technophiles tend to be a smart and confident lot, convinced that their world view is just and that history is on their side. So it always comes as a shock when they realize that the principles they hold dear are viewed with nothing less than contempt by many politicians and much of the public. On Capitol Hill last week, .. Responding to what was evidently a brilliant lobbying campaign by FBI Director Louis Freeh, the House Select Committee on Intelligence took a bill originally designed to loosen export restrictions on encryption software and turned it on its head. The amended version of the so-called SAFE bill not only maintains current export restrictions, it also calls for a sweeping new regime to control the use of encryption domestically. For the computer industry, and for civil liberties and privacy activists, it was a devastating reversal. ... In a series of secret briefings for members of Congress, he apparently told some very scary stories and persuaded many of them that encryption posed a grave threat to law enforcement, and that not only exports but also domestic use must be closely controlled. .. Responding to a few scare stories on the assumption that their constituents will respond to them too, members of Congress--in closed session and on a voice vote--approve a radical bill that flies in the face of all kinds of democratic traditions, hurts an important industry and may well be unconstitutional. [ e-mail Jonathan WeberLA Times, Sep 15] Paranoia works when public debate is denied, often because of it, and we depend on the good sense of elected officials whose main goal is re-election. And if you do government business, especially with DOD, you can have your stuff blanked out with no explanation and no recourse (unless you get your Congressional delegation to go public for you). The Constitution rarely gets through the locked doors, either. A Wisconsin Trove. By Under the cover of darkness, a Navy transport plane swoops low and drops a weighted rubber raft into a roiling sea. It quickly sinks to the ocean floor and awaits the start of its mission. Hours later, a team of Navy SEALs arrives by submarine. Buoys on board the raft are inflated by radio transmitter, and the dingy and its contents slowly rise to the surface to meet the commandos. Back in Milwaukee, the responsibility of Nicholas Hirsch and his company, Advanced Engines Development, is to make sure the outboard engine works perfectly: It must be waterproof. It has to operate on jet fuel. And the modified Mercury Marine outboard absolutely must start on two pulls. "It's got to be dead stone reliable," Hirsch said. [Lee Bergquist, Milwaukee Journal Sentinel, Sep 15] That was one of the 28 SBIRs last year in Wisconsin for $11M. The biggest recipient again this year is Orbital Technologies whose two grants will help finance construction of a greenhouse slated to operate on board a space shuttle flight in October 1998 of a so-called "growth chamber" will control temperature, heat, light, nutrients, carbon dioxide and water. So, an underwater storable outboard motor and a space garden - commercialization anyone? Yet the beneficiaries and their local advocates love it -"I think it's a critical source of seed capital for research in this state," said Phil Sobocinski, director of university-industry relations at the University of Wisconsin - for all the Other People's Money it brings into the state. It's a free lunch.

Wanna Understand Europe Info-Tech? The October Red Herring has a full insert on "searching for the next Silicon Valley". UK (a new creature after yesterday's Scot devolution vote) has about the same VC investment as all the others combined although Scotland's "Silicon When" still shows a dearth of startups and English toleration of northward money flow (net for three centuries) may decline with devolution. One lesson for US policy makers, federal and state, is the failure of government's intervention in company building.

Southern California entrepreneurs and business leaders have begun to question the lack of venture capital flowing to the area's many eager small firms. The region abounds in technology, yet ranks behind Northern California's Silicon Valley, Massachusetts' Route 128 and even North Carolina's Research Triangle and Austin, Texas, in the amount of venture investments disbursed to local companies. But that situation is about to change thanks to a convergence of money, corporate interests, universities, technology start-ups and a number of savvy organizers who might be called facilitators of entrepreneurial business.... "Entrepreneurs can call on the managerial and technical resources of our backer companies and of the Annenberg Center's EC2 Incubator Project," .... "In Silicon Valley you can go out to a few events and a lunch and assemble a pretty good management team. Here we're making progress, but we're not there yet," he says. "Business plans here predict unrealistic, 96% profits or forecast enormous sales growth but only a 5% rise in costs. The entrepreneurs need help," [T Flanagan, LA Times, Sep 10] So, North Carolina is one of many areas with Silicon Valley envy. One difference is that the solution is wholly private with no politicians to "help". Bad business plans? Oh sure, read SBIR proposals for a living sometime and see how blind technical experts are to rudimentary business. Wanna Invest with a Politician?
(Sep 9) The North Carolina Biotechnology Center hopes to use a $7.5M appropriation from the state legislature as leverage to create a $30 million VC fund that would invest in [NC] bioscience-oriented companies [with] an additional $22.5 million from private and institutional investors interested in early-stage investments... VC for startup companies is widely seen as the biggest single problem facing technology-oriented companies in the Triangle. "Today, we have a young and growing biotechnology industry," Gov. Jim Hunt said, "but it needs more capital in order to reach its full potential" .. Raising private money to augment the Biotechnology Center's funds, however, may not be easy because its pitch to investors will differ from that of traditional venture capital funds. Private funds focus solely on generating a rate of return for investors. But the proposed fund will have a dual purpose investment returns and economic development [ Raleigh News Observer, Sep 9] Would you invest in conflicting objectives fund expecting freedom to maximize return by any legal means which coul mean moving out of NC? Do parochial VC funds have any chance of attracting free investors or will NC have to twist the arm of a state pension fund for the money? Why politically driven "investment" programs have lousy returns.

Or With Even Bigger Politicians? The French government expects to rake in $12B for 38% of France Telecom in a gigantic IPO. Wanna go minority partners with a socialist government in running a company?

Some GAO testimony: since 1990, 6500 companies have had SBIR or STTR awards from the five big agencies. Of these, 6% got ten or more, and two have over 300 each. And the big question that haunts SBIR is what the 6500 companies have contributed for the billions spent BEYOND the expected value of the contracted R&D. After all, the most basic premise for SBIR is that small companies have more innovation and will do more good with it than will large institutions. If the 6500 companies cannot show they well exceeded what the R&D money would have otherwise bought, they have no SBIR case since government should have a compelling reason to intervene, not just a nice untestable reason. No compelling evidence has yet been found. Meanwhile, good R&D will still be funded by the agencies who made SBIR what it is as if SBIR never existed.

DOD Reveals SBIR Solicitation

seeking the usual range from dual-use innovation to hopelessly military or techno-pabulum like meteor shower analysis, team building, physics modeling, and info-tech that any Silicon Valley'er does better and faster.
Bureaucrats Resurface Fast Track
DOD's two year experiment with SBIR Fast Track worked so well that DOD resurfaced the track with glue. The 1998 rules slow the dash-to-market minority, only 11% of Phase 2 proposals. Several changes, that will spook the necessary third-party investors:
A) match rate up to 1:1 (from 1:2) for all but the Phase 2 virgins (still 1:4);
B) all matching cash in hand by 45 days after notification while DOD takes its sweet time for contract award (maybe average five months) and the contract takes two years to perform;
C) a mandatory statement by the third party investor that it knows what it is doing;
D) Phase 1 final report submitted by a date certain (210 days after Phase 1 start);
E) Failure to meet any of B, C, or D disqualifies company for Fast Track AND regular Phase 2 and any Gatorade for relief.
Why Spoil a Winning Experiment? DOD is of two minds on commercializing SBIR, not unlike NASA. Headquarters wants the grand vision but the Services, who believe commercialization is an unrequited benefit for the company, want their R&D done. Why not just issue a CEO decree like any corporation? DOD doesn't work that way. Although the new restrictions sound administratively rational, they give the Services a lever to cut even the 11% of Phase 2s that went to Fast Track in the first year. Only BMDO believes that commercializing will get new technology developed faster and cheaper than Cold War autarky. Curiously, the Services were probably not as malicious as they seem; the administrators wanted to simplify their SBIR lives and cut what they saw as abuse of the Fast Track. (Some of them find abuse when the company makes any profit.)

But: Fast Track does more than any other agency, even diminished, for real entrepreneurs. It enforces economic reality in place of self-serving fantasies by companies to win government contracts. And it invites monied partners.

Isn't Unit Cost THE Commercial Driver?
Unit Cost No Object
DOD's SBIR dissension apparently led to BMDO's cancelling its Unit Cost Reduction topic. Since cost is the one greatest factor that inhibits commercializing a DOD technology, BMDO wanted to keep UCR. BMDO sees topics like the economics exam - only the answers change. (The only topic changes in 10 years were to add Superconductivity, add Surprises and Opportunities, and substitute UCR for Nuclear Space Power - a real commercial loser.) Although UCR can be adopted an inherent tech advantage in any useful technology, a separate topic highlights the attitude. Not this year.
Why No Unit Cost Reduction?
Another DOD turf fight. The Secretary's office guards its technology turf by declaring which topics submitted by the components do not promote dual-use. The 1992 rise in SBIR money raised SBIR into bureaucratic visibility as a potential empire for people with a history of whipping the wrong horse. The Clinton appointees wanted dual-use with programs like TRP and Fast Track over which the DOD bureaucrats then wangled a veto power, the bane of any progressive action. The effect, fortunately, is merely symbolic. BMDO can still fund any proposal it finds will advance its goal of dramatic cost reduction leading to dual-use. Although BMDO's UCR is out, AF's meteor shower analysis is in. Huh? Return to Index

Read the solicitation and contact the technical people who wrote the topics until Oct 1.

You, too, might find a seat at the $500M banquet served by a catering monopoly. Tasty food, insolent service.

NIMBY .. Albuquerque DOE employees got a [temporary] reprieve Friday. Energy Secretary Federico Peña issued the temporary reprieve after meeting with Sen. Pete Domenici, R-N.M., regarding efforts to work out a compromise between the House and Senate over the DOE's 1998 budget. Managers at the Albuquerque office came to work Friday prepared to issue 175 layoff notices, but Peña at the last moment put the plan on hold to give congressional leaders time to work out their differences. ...[the 1400 employee office] manages operations at Sandia and Los Alamos national laboratories, as well as nuclear factories around the United States. [Albuquerque Journal, Sep 8]

Why Cities Worry "Our research indicates that the future economic success of metros will be heavily dependent on their ability to attract, nurture and expand high technology-based industry clusters.'' In other words, it's fine to pine for the lunch-bucket and assembly-line jobs of yesteryear, but it's chips & genes, not ships & ice cream, that'll keep this region from becoming tomorrow's Altoona ... New Mexico, Texas, Florida, Georgia, Nebraska, Michigan, Ohio, New York and -- sigh -- Pennsylvania turn up below average. .. in recent growth, Philadelphia ranks 75 out of 100 ... The stakes are high and getting higher. ..without at least participating in high-tech growth, it's going to be very difficult for a metro area to keep pace with the overall U.S. economy.''. [Philadelphia Enquirer, Sep 5] When cities worry, their Congress worries with them. Which is why programs like SBIR get pressure for "fair" funding. When it comes to a choice between national competitiveness and local competitiveness, all politics is local. But "fair" is as elusive in federal funding of high-tech as it is in income tax rates.

Venture Money in Mid-Atlantic
More VC for Maryland and Virginia Venture capital continues to flow along the mid-Atlantic coast, as the economy swells and investors infuse dozens of infant and toddler companies with money and energy. Both Maryland and Virginia booked healthy increases in venture-capital placements during the first half of this year, In Maryland, venture capitalists invested $59 million in 14 companies, up from $47 million and 12 companies during the first half of 1996. For Virginia, venture capital deals grew from 19 to 29, and invested funds expanded from $80 million to $110 million. ... Virginia ranked 14th among states for venture deal valuation in the first half; Maryland, 22nd.[ Jay Hancock Baltimore Sun, Sep 4] Mr Davis, a NoVa Congressman mustn't have heard the news as he complained that all those companies pouring into the Dulles corridor weren't getting VC and therefore SBIR was good for Virginia. Meanwhile, A Home-Cooking Debate Farther South In North Carolina the legislature is wrestling with a VC bill to invest $100 million of the state's money in venture with questions like which state official will invest the money, where the money will come from and whether the investments should be restricted to North Carolina-based VC firms But why bother? The state's investments have yielded an annualized 5.2% return since 1987. Even the last two year return of 16% pales against a 29% return on its overall equity investments. In other words, stick with Wall Street stocks if all you want is financial return. Only if you want to mix politics with investments should you start a local VC fund with restricted investments. Of course, states do such things because jobs for voters outranks state finances.

Little company need a little help in LA county (other than from my son the deputy sheriff)? The Los Angeles County Office of Small Business has a straightforward purpose--to create jobs by helping small businesses grow as they increasingly share in the $4 billion that the county spends each year on goods and services. ...created with a $150K grant from the U.S. Commerce Department's Economic Development Administration (a favored Republican hatchet target). Let the Fed help local development? Why? Those interested in whether federal help is the RIGHT thing can read the conservative case AGAINST school vouchers in Gerald Seib's column in Wall Street Journal Sep 3. ....Oregon and Michigan have set up similar operations. Will the LAOSB mimic the results of many forms of federal support, like SBIR - end the support and the enterprise collapses? Jobs in high-technology industries carry many benefits, says a WEFA Inc study. They include: * An average 1996 wage of $53K for high-tech jobs compared to $29K overall. * Spillover effect. High-tech firms require local accounting help, telecommunications support, airports and other services. * A direct link between the concentration of high-tech jobs and a metropolitan area's growth rate. A city with high-tech jobs growing 4% annually will grow a full percentage point faster than the national economy. * High-tech industries grew in 1996 at a 16-percent rate. [Detroit News, Sep 3] The good and bad news is that since the politicians know this instinctively, they cannot resist doing something, anything, to "foster" local high tech industry. One regularly suggested way would target SBIR to "have-not" areas. Which might actually be a reasonable alternative (although practically unattainable) to the present scheme of handing most of SBIR to mediocre firms.

"Since our leader quit, we ought to reconsider what were doing," says Start Technology Partnership, a nonprofit group near Philadelphia, which helps universities commercialize their inventions and which is closing its offices and re-evaluating its mission after six years. Universities, which pay $10,000 each to belong to Start, have been somewhat reluctant to sign the rights to their inventions over to a small group like Start. And to boot, Start's expansion has occurred at the same time that some of the academic centers have felt a need to expand their offices, said the Exec Committee chair. Start's expansion caused the universities to see Start as a competitor. No interest like a vested academic interest. [John Wilen, Philadelphia Business Journal, Sep 1] Ever Predict the Effect of Your Proposed SBIR's Success? Think Big Enough?Q: More than a hundred years ago a guy named Dave Walter assembled what he called America's best minds and had them look 100 years into the future on the occasion of the 1893 World's Fair in Chicago. Not one envisioned the rise of mass motoring even though Karl Benz had patented the internal combustion machine seven years earlier. Schwartz's A: They saw the car as principally a luxury good. They could not imagine mass manufacturing bringing the costs down to affordable levels. Remember, one of the earliest cars was made by Rolls. These were handmade jewels that could only be driven by the very wealthy. The very same thinking was applied to electricity in the home. Electric trains and electric Christmas tree lights were a big fad for the ultra rich in 1897. [Barron's, Sep 1, interviewing Leyden & Schwartz of Wired] Of course, whatever you predict will be wrong. But you cannot spark enthusiasm in a government official without a vision and the government guy has no better answer anyway and is usually afraid to voice any vision..

Two Governments In Action
No Matter How Rich, Politics
(Aug 29) California, not content with being the mother lode of new tech firms, passes out money to "promote home-grown technologies". Six San Diego-area firms got $1.2M in state grants, part of $5 million distributed statewide by the California Trade and Commerce Agency's office of strategic technology. The grant winners: Digirad, Nanogen, Space Electronics, Aguila Technologies, ; ThermoTrex, and SeaSpace. [San Diego Union Tribune, Aug 28] Aguila is a 1996 startup by Al Capote, founder of Toranaga Technologies. ThermoTrex is a subsidiary of Thermo-Electron - an incubator of spinoff technologies - and an odd beneficiary for state seed money. Digirad, formerly Aurora Technologies, makes products that measure gamma radiation with cadmium zinc-telluride (CZT) detectors, has developed a semiconductor technology with the potential for revolutionizing nuclear medicine imagers. Nanogen's website hypes "revolutionary technology that results in the rapid manipulation, detection, and analysis of charged macromolecules in biologic samples on multiple sites in an array format". SeaSpace sells integrated hardware and software tools, called TeraScan(r), to acquire, process, and analyze weather satellite data. Such grants make the company choose between hypocrisy and economics. The federal government often aggravates the rich-get-richer situation by using such grants as a basis for federal aid from programs like SBIR despite being officially neutral in inter-state competition. Interested policy wonks should try Peterson's The Price of Federalism, The Brookings Institution, 1995.

Squaring the Circle. Square Canopy for ACES (Advanced Concept Ejection Seat) II... Since 1940 square canopies were developed by "sport" parachutists. ... The current ejection seat personnel canopies (or parachutes) are round in design and date back to 1940. ... We want someone to develop such a canopy for the ACES ejection seat. This is currently used on the F-16, A-10, B-2, and F-15 just to name a few of the military aircraft ... PHASE I: Develop a canopy .. at least one full scale model, and verification of the self operating requirement through witnessed tests. .... POTENTIAL COMMERCIAL MARKET: The system developed can be used by non-military aviators of highspeed aircraft (i.e. aerobatic sport aircraft, privately owned military surplus aircraft). Got the idea for this 1998 AF SBIR? Phase 1 only for a full tested prototype of squaring a round 1940 parachute which has been squared since 1940 in the civilian market. Adapt a 50-year old civilian technology to a military use and claim commercialization. High technology? High innovation? High payoff? High commercialization? High altitude? Using SBIR for low-tech engineering? Want a piece of the action? ... and ... What's the Problem? What's the Problem with Squaring the Circle? The Air Force is using a program meant for the most dual-use high-tech innovations for government-only engineering. Isn't that OK if the SB world gets money? It's a mirage, a dirty little secret that the beneficiaries don't talk about. The SB community isn't getting any more money than it would have if SBIR never existed. In fact, the targeted SB world has not gotten what the law intended while the established government groupies, the beneficiaries, are getting what they always got. Isn't the Air Force hurting itself by not exploiting the chance for introducing commercial drive into its R&D? Yes, institutions aren't good at recognizing and seizing change; they have to be dragged into it by embarrassing consequences.

Should any small business therefore avoid SBIR?. NO. Just don't believe the hype about what it is and what it does. If you're a good DOD contractor, keep doing what you're doing with the knowledge that every addition to SBIR is a subtraction from regular procurement. If you got a dynamite, dogma-shifting, dual-use, high-impact innovation, take it the BMDO, the ONLY program that cares.

NASA Picks 50 STTR Winners
(Jul 21) NASA STTR says it funded 50 of the 200 Phase 1 proposals for 1997. Only three companies won two awards and nobody won more than two. Judging just from the titles, hardware is in and analysis is out (only three suspect titles). No CFD modeling like NASA's last SBIR had ten of. Next chance to check NASA's SBIR attitude is October 10.

Economic Suicide
(Aug 29) When demand drops, Economics 101 teaches that it is suicidal to raise prices. But, lo, the government's SBIR organizers did just that. Faced with a falling demand, it has raised the price of its National SBIR Conferences by two-thirds. How did the government find itself in such a suicidal situation despite the SBIR prize pool rising steadily since 1983? Best guess: the Internet where government, particularly DOD, has opened its process to many more people than the Conferences do. At bottom though, government agencies believe not in economic laws but in the Golden Rule - who has the gold makes the rules. The once Post Office (and many public transit systems) had the same attitude until Congress let FedEx compete and changed the PO into an autonomous corporation that MIGHT be allowed to fail. One has to ask: What is the government's objective with these SBIR conferences? And are its means consistent with its ends? A revealing note: in Phoenix, an all-day Phase 2 proposal workshop will be sponsored by market-driven experts - Sandia, Los Alamos, and Livermore. Better bombs for fun and profit? Who should go? for the $250 plus travel? Unwired SBIR rookies who don't Internet well and don't mind hearing fuzzy answers from government mouthpieces who will NOT be deciding the fate of any proposal. (Only BMDO sends its decider to face the public.) Outlook for the Conference: another decline in faces

Oshkosh Engine Report: My third year of Oshkosh festivities and engine spotting has taken a definite turn to the oil burner. There were at least 8 jet fuelers with 7 of them being new: Zoche, Renault, Teledyne, Velocity, Two NASA SBIR entries, EOS and Williams (yes I know it is a turbojet).The two SBIR display engines and the EOS were foam mock ups and spec sheets. Been there, seen that, got the Tee Shirt. The Williams V Jet was there with heavier, noisier, less powerful engines. 30 M$ should help that. Gulp. Not a single one of the above had a running engine at the show. Big disappointment. SHOW ME THE HORSEPOWER! [From: (ReganRanch) in dejanews Aug 9] Hydride Power One form of government dream may actually be coming true. At; least the first signs of economic life for metal hydrides. A bus powered by hydrogen has begun carrying its first passengers in Augusta, Georgia. The hydrogen on the bus is stored as nickel hydride which when heated releases the hydrogen as fuel. No compressed gaseous hydrogen. "We have now met the challenge of making hydrogen a safe fuel," says a spokesman for the US Department of Energy (eager to find a rational for the research.) [story from New Scientist, Aug 30] DOD also saw a lot of metal hydride SBIR proposals for various power sources. In the main, the only difference between SBIR and other proposals was the size of the company. None (I saw) had any notion of commercializing (only talking about it as far as government wanted to hear). The Georgia bus idea, though, has a long way to an economically independent technology. Maybe, maybe, maybe, some day the tons of money poured into subsidizing alternatives to nuclear and fossil energy (to avoid the practical solutions of conservation and taxing fuels) will do some good.

A Management SBIR
(Aug 19) Today's (Aug19) Washington Post (Federal Page) tells an SBIR story of a development of paperless program management. REI Systems Inc (of convenient Vienna, VA) got a NASA SBIR around 1990 develop an electronic data management scheme for NASA's SBIR itself. After seven years of NASA supervision (and presumably funding) , it has a product "DB Genie" that the government owns and is therefore public domain (and thus just a commodity). The NASA sponsor says that almost no one outside NASA knows about it. The Post says REI will make money by helping agencies construct handbooks that their own employee and agency customers (?) can use. A few questions: Could this story ever make it into the San Jose Mercury even if the firm were in Silicon Valley? Did electronic data management need SBIR help after VisiCalc and Lotus 1-2-3? Did NASA effectively raid its SBIR budget for administration? Why did it take NASA eight years to adopt it? Do you think NASA understands how technology business works? Do you think the Washington Post editors know?

NASAnalysis - Parsing NASA's Sensors SBIRs

How can those who don't regularly wheedle SBIRs out of NASA understand NASA-think? One test is breadth. Take sensors, a popular topic in mission agencies. Of 84 Phase 1 awards in 1996, 67 different companies got at least one and the SBIR gamesters got the multiples: Physical Sciences (5), PixelVision,(4) SPEC and Sensors Unlimited (3) , InfraRed Fibers, Fibers and Sensors, and ATMI (2). (ATMI can at least credibly claim commercial value.) What about quality?
1) NASA likes its sensors developable in the short term from well-understood concepts
2) NASA likes complete sensors, not just a core innovation as a springboard to a new sensor concept
3) NASA accepts tech transfer from a different application as innovative enough (use a favorite federal techno-word "leverage")
4) NASA likes routine software to process sensor data if written in algorithm-gibberish
5) NASA likes instrument suites with existing technology for routine data collection
6) NASA likes elegant, high-performance, even if expensive, solutions
7) NASA likes defensive research where scientists follow the engineers explaining why the gizmo works
On balance, NASA likes predictable development that produces an end item after Phase 2. It may well be one-of-a-kind for a specific NASA purpose but you must still pretend there's a thirsty commercial market. A few innovative-sounding exceptions:
A) multi-layer, flexible, electrically active sheets, that incorporates all the proximity, tactile, and temperature sensing capabilities of naturally evolved skin;
B) explore a differential sensing scheme for overcoming the indeterminacy of displacement [of magnetic bearings];
C) a miniature turbomolecular vacuum pump Return to Index

First DOD notice for January's SBIR. Air Force Wright Lab topics including one for chemical kinetics of fuels overseen by a 1996 PhD in such kinetics (gave the newbie something to do) and one for a cost model. "Technology innovation" has a broad definition in DOD. The message is that if you got a narrow skill that they want, they will help you rationalize its commercial story.

Three SBIRs in Two Agencies

A NASA Winner
Long Live Navier-Stokes. Laminar to turbulent transition phenomenon in hypersonic flows remains poorly understood although it has a profound impact on the thermal protection system weight, vehicle drag and air-breathing engine performance. Transition location uncertainty forces designers to be conservative by adding weight and reducing thrust. Accurate prediction techniques are in dyer need. Here, we propose to develop a transition prediction tool based on an innovative Navier-Stokes solver. The resulting code is computationally efficient and can be used to study the receptivity and disturbance growth without the restriction of slowly varying mean flows. The low streamwise resolution requirement in the proposed approach is made possible by a transformation which not only improves the accuracy but also helps in imposition of the outflow boundary conditions. The proposed tool can be used for studying various instability problems of relevance in supersonic and hypersonic flows such as blunt body flow and flow past a corner. This project will result in a reliable tool for prediction of transition for hypersonic vehicles.
POTENTIAL COMMERCIAL APPLICATIONS Transition location affects thermal protection system weight, vehicle drag and air-breathing engine performance. The proposed project will be a major step towards developing reliable techniques for hypersonic transition prediction. Therefore, the code will be of interest to aerospace companies. Since NASA is also involved in designing hypersonic vehicles, the developed code will also be of interest to NASA.
QUESTIONS: How many university researchers in three decades have tackled the problem?
What university researcher would buy someone else's code and put himself out of a job?
How many codes will ever be sold commercially?
Has NASA or the company heard of ROI?
Did NASA actually buy the commercial fantasy?
Did NASA consider the commercial record of company or technology?
Does the performing small business reside within 23 miles of the granting center?
Is there any chance that the Phase 1 would fail?
Which rules NASA SBIR: criteria or interests?
And What Do Others Do?
Optimal SiC Source Powder for Bulk SiC Growth. The properties of single-crystal silicon carbide are such that electronics devices from this material have demonstrated remarkable performance characteristics. Despite the material's promise, the material has not yet found acceptance in mainstream device markets because of the material's high cost, among other reasons. This Phase I SBIR proposes an SiC source powder with unique properties which will in turn improve dramatically the economics of SiC commercial production. SiC remains unable to gain widespread acceptance in mainstream semiconductor device markets in part because of the high cost. That is, it is economically inefficient to fabricate devices from small area semiconductor materials. SiC will impact high power, high temperature devices.
QUESTIONS: Can you smell the economic driver?
Is there a decent chance that Phase1 will fail? Is taking chances good or bad?

Lethality Enhancement of Hit-to-Kill Interceptors Although the "hit-to-kill" technology has shown promise in recent field tests, complete destruction/neutralization of biological submunitions cannot be guaranteed. The subject effort proposes a new concept which enhances the lethality of hit-to-kill interceptors by a synergistic combination of (a) enhanced energy due to a non-parasitic chemical component provided by reactive structural components on the interceptor, (b)enhanced penetration , (c) enlarging the area/volume of target destruction to include the aim point area, and (d) high temperature fireball rich in UV which can provide for destruction of biological agents without requiring mixing of the clouds. These effects result from highly exothermic composites which can serve as structural components of the interceptor itself. An experimental program is proposed to demonstrate the elements of lethality enhancement to be related and suggested as PAC-3 improvements as well as future hit-to-kill interceptors against cruise missiles. The proposed effort will establish the efficacy of using reactive structure components for enhancing the defeat of biological agents contained in ballistic or cruise missile submunition warheads. The proposed concept would lead to large scale sled tests prior to testing reactive structural elements in a flight experiment. Commercial applications of this technology would provide improved mining techniques.
QUESTIONS Are these two awards from the same criteria?
Has the company maybe done this for a long time?
What mining? Is any boom is good for mining?
Does this agency share anything with the NASA of hypersonic transition?

How to compete in NASA? Says one advice bureau: it is damn tough to get a award from them. Stiff competition. Make sure you have your ducks in a row!Got the message for Oct 10? How to compete in this agency? Be all things to all people? Read a text on schizophrenia? Work the internal politics? Hire a gray ex-government consultant?

NASA Solicits SBIR

NASA's Strategic SBIR Thought
(Aug 4) NASA's SBIR solicitation asserts NASA's approach to markets: NASA has established a framework for making management decisions by separating the Agency's program into externally focused Strategic Enterprises through which we implement our mission and communicate with our external customers. These Enterprises identify, at the most fundamental level, what we do and for whom. They focus us on the ends, not the means, of our endeavors. Each of our Strategic Enterprises is analogous to a strategic business unit employed by private-sector companies to focus on and respond to their customers' needs. Each Strategic Enterprise has a unique set of strategic goals, objectives, and strategies that addresses the requirements of its primary external customers. Because each Enterprise must align its programmatic thrusts with its own customers' needs, each requires its own individual strategy. Research topics and subtopics in this Solicitation are organized by the four Enterprises:
Aeronautics and Space Transportation Technology
Human Exploration and Development of Space
Mission To Planet Earth
Space Science
In addition, synergy among the Enterprises is captured in a separate section in the Solicitation called Crosscutting Technologies
Return to Index

Got it? Understand how NASA thinks?
Do people who talk like this grasp "market-driven"?
Would Brussels's Eurocrats be envious of such language?
Do you feel a sense of the "external customers" needs?
Think any bureau can focus on ends rather than means?

don't judge any SBIR by its solicitation;
judge by what is funded
On second thought, mere proposers aren't invited to judge NASA at all. Just follow our instructions and take what we give you. Trust us, we're the government.

What Does It Say? Although it typically mumbles criteria, a few phrases speak. Projects are expected to emphasize near-term applicability to NASA. Not an invitation to high-risk revolutionary technology, especially the chilling phrase, "near-term", although elsewhere it rejects straightforward engineering design for packaging or adaptation to specific applications.
Selection preference will be given to eligible proposals where the innovations are judged to have significant potential for commercial application.
which usually means "all other things being equal", which they never are. The line between near-term and mere packaging will be in the eye of the beholder. Phase 2 will be judged by the highest potential value to NASA and to the U.S. economy. At least it's some recognition of commercial appeal. But so vague a term as value to the US economy leaves oceans of room for interpretation by each decider to accept or reject the dreams of the proposer with or without any economic defensible proof. Infinite wiggle room.
And, oh yes, The proposal should be logically organized, direct, and concise as well as following the NASA format to the letter. What's more, in the spirit of micromanagement, thou shalt not travel to a supplier to fix any problems nor inspect any goods; only travel permitted in Phase 1 is a one person trip to the NASA center.
Who decides? Most selection decisions are aligned with priorities recommended by each Installation That's code for "each NASA Center gets what it wants ". Sub-optimization to avoid turf wars. The high-flown language of headquarters about commercialization means little. Headquarters will have to do what it can with what it's dealt by the centers' Phase 2 selections.Return to Index
Gonna hurl your entrepreneurial idea into NASA by October10?

Wanna Understand NASA SBIR
(Jul 7) Want to understand NASA SBIR? Check its excellent Website with complete archives of what NASA's funded. Whoever built the Website should do the public shows. See the bureaucracy in its viewgraphs that no one would remember the next day and drone about input. Scan the awards to sense the direct service to NASA missions with incremental advance and defensive research and one of a kind products. Feel the definition of commercialization: a universal service to the world (which conveniently the accountants cannot evaluate). Ah, well; it's their money, and the public will have just to accept NASA's view of public service. NASA then hires scads of PR and support groups to make silk purses. HQ wants the PR and the Centers, who pick the winners, want research. Congress, having made SBIR that way, doesn't want to fix it. So, good R&D service companies should keep going to that well. At least the beneficiaries love it and will defend vigorously the "value" of their "innovations". Next chance to compete with all those the companies who have learned to play NASA is October 10.
NASA Mixed-Modern SBIR
(Jul 9) NASA's gonna be multi-mode. NASA SBIR wants a modern digital solicitation but can't convince every bureaucrat to dispense with the paper. So, to make it better for proposers , it will require the works - e-mail, Internet, three virus-free floppy disks, and a signed paper version plus triplicates. Sure, somebody's job depends on paper copy and that somebody probably has a veto over change. SB's added expense to cover all these forms? Not our problem. Can the winners at least write off the added expense in the resulting contract? Oh, no. Can anybody write it off? Past winners who have an established overhead rate for government contracts. Does this policy then favor past winners? Huh? Proposals due October 9, just before the National SBIR Conference.

Ten years ago, small businesses won 17.9% of federal contracts. By 1995 it was up to 21.2 %, but last year it fell to 20.8%. The current goal says federal agencies should try to give small firms 20% of all contracts, by dollar volume. Although a proposed Executive Order would raise it to 23%, agencies will resist as their budgets shrink. So, what does small business want? Smaller government or more government business? Both? [facts from Dallas Morning News, Aug 30]

The biggest economic-policy mistake of the past 50 years, in rich and poor countries alike, has been and still is to expect too much of government ... [the economists] are unfailingly quick to point out various species of market failure; they are usually much slower to ask whether the supposed remedy of government intervention might not, in practice, be worse. ... Implicitly, at least, [economics textbooks] their message is that markets aren't perfect and government (advised by economists) can be. Dismal is the word. [The Economist, Aug 23] And once the beneficiaries get hunkered in, the new magic program will not easily die. Sound like SBIR? Is it reasonable to expect government to rank self-proclaimed entrepreneurs by their chances of success in new technology markets? Actually, almost all SBIR administrators evade incompetence by ignoring the law's premise and re-directing the money back into the usual R&D from which it was hijacked. Only BMDO (practically) pursues SBIR's intent and only by relying on market-driven investors for ranking the claimants. So, if you are a real entrepreneuer, go for BMDO.

The Army has revised and strengthened the SBIR program to better leverage and support this innovative, entreprenenurial sector of our economy. [Army Science & Technology Master Plan] Now, if only the Army's selection of SBIR projects proved its claim (whatever the claim actually means). "revised and strengthened" by what criteria? "leverage and support" means what? (bureaucrats use it regularly to mean something like that someone else is doing it too so we can enjoy their fruits). Wanna run an Army lab and fix that R&D bureaubabble? Benet Lab needs a Director. In Army-speak it is the US Army Tank-automotive and Armaments Command (TACOM), US Army Armaments Research Development and Engineering Center (ARDEC), Close Combat Armaments Center (CCAC), Benet Laboratory, Picatinny Arsenal. Although the Wall Street Journal classified ad says the lab is in upstate New York, real people know it is at one of the nation's oldest military installations, on the Hudson River in the boyhood home town of the founder of Carl Nelson Consulting. Intellectual stimulus is quite available across the river from Watervliet at RPI, the alma mater of said founder. For info on the job call 703-617-9415.

Did democracy sink the Constitution into today's fiduciary debauchery? John Steele Gordon [Wall Street Journal, Aug 6] says YES. The Constitution gave spending power to the Congress of the property-owning Founders. Just as the British Parliament restrained the King from doing what Kings and paupers do naturally - spend other peoples' money. Then the 19th century in both nations brought enfranchisement of the masses whose representatives now had the power to spend the property owners' tax money to buy re-election. In America only the President is a nationally elected power and he thus theoretically has the burden of balancing spending with taxing. Our latest exercise of "budget balancing through more spending and fewer taxes" showed that even the President has joined the paupers.

Colleges To Do Rocket Research
(Aug 4) The Department of Energy will start a 10-year, $250 million program to develop computer models for solid-propellant rockets and nuclear weapons testing including $40M for a University of Illinois's Center for Simulation of Advanced Rockets. With its $50M, the University of Chicago will establish a Center on Astrophysical Thermonuclear Flashes to study the physics of exploding stars and natural nuclear detonations in space. Anyone wanna bet against Energy and DOD and NASA doing SBIRs for the same thing and pretending commercialization? If academics get $250M, what can a small company do better that justifies adding to the duplication that the universities will do anyway? Small entrepreneurs just have no advantage in research. NO, better to use SBIR for demonstrable commercializable projects by demonstrable entrepreneurs. Next question: how did DOE get into rocket propulsion? [Facts from Claudia Banks, Chicago Tribune, Aug 1]

Policy wonks looking for OTA reports? Sorry, OTA was killed by its parent - the Republican Congress which didn't want an independent analysis that came to unpartisan conclusions after due deliberation. But the reports have been archived at Princeton . And so from cloning to earthwarming Congress can decide truth the high-tech way - polls.

A Rich Field for SBIR and those VCs - Photonics.
Photonics is one of the few perfect arenas for SBIR to get technology started toward a growing market. Most SBIR does no such thing as agencies merely copy their programs invented to favor large entities with defensive research or incremental improvements. It's actually a worse waste because for most of such things the large entity can do the work better anyway. Jonathan Marshall's San Francisco Chronicle piece July 29 tells the Bay Area story photonics story.

If industrial policy had been in place for the past two decades, the bulk of "strategic investments" in computers would have gone to IBM or Burroughs or Honeywell - to subsidize the creations of better mainframes. Of course, since politics soon intrudes on even the most academic discussions when money is involved, such "investment" would have been Robert Byrded: instead of the thriving Silicon Valley in California, we'd have a well-financed but noncompetitive "Vacuum Tube Valley" somewhere in West Virginia. [J Pinkerton, "What Comes Next", 1995] Think the planners and deciders at ATP can avoid the same trap? Can anyone who believes in "critical technology" be trusted with investment for future industry? Do SBIR proposers look visionary or grasping in arguing that their critical technology merits a government handout (oops, investment)?

What does NIST fear? The start-up company submitted a proposal to ATP after ATP made public speeches about liking startups. Denied!, after which ATP offers a debriefing on a date certain at a time certain for unlimited listeners, BUT NO TAPE RECORDING. What does NIST fear? Are stenographers allowed and would a court find any useful distinction? Is the demand Constitutional? Why would an agency fostering new technology anchor its concern in an old technology? Is Dictaphone (remember the belts?) a tape recorder? Think bureaucracy ever dies?

The loser's game is to send your squealers to Washington to see if they can get a bigger piece of the pork than the other guy's squealers. I refuse to participate in it. [TJRodgers, The American Enterprise, J/A97] Rodgers has the lowest CEO salary in Silicon Valley for his size company and probably the loudest voice; he gets his reward from his 2% of the company's stock.

What to Expect from NSF SBIR

Number One in the "Top 100": Finding Value in Patent Portfolios Using Co-Citation Analysis. If there's one thing the US financial world needs NO government support for, it's a portfolio value analyzer. Wall Street teems with analysts all looking for (and finding) the minutest opening. Another subtle sign: NSF's listing names the program manager before it names the company. Also prominent in the top 100 are some old favorites: Spire, Lynntech, Epion's diamond research IAI, Displaytech. First conclusion: don't take disruptive innovative to NSF. Take your safe incremental advances with laudable societal goals, like better education. Emphasize the science and academic interests, like schoolroom ODEs. One project will do more internal molecular modeling that might expect a payoff in the middle of the next century. One Phase 2 will do an info system for more efficient fishing: a result that would vacuum the few remaining fish from the seas. And of course there is a turbulence model, a CFD model, an OR analysis for fire departments, a South Pole windmill, and a cut-rate school lab instrument. Makes one wonder what NSF SBIR thinks government is for. Of the "top 100" Phase 1 awards in 1996, only two innovative companies pop into view: Reveo (Hawthorne, NY), and CCVD (Chamblee, GA). The rest have dreams that will survive as long as government supplies money.

Two NIH SBIR Projects: Commercializable new technology .... and virtue?

NEW MONITOR OF SALIVA GLUCOSE FOR DIABETICS The objective of this project is to develop a noninvasive device for the measurement of glucose in saliva to monitor diabetic control. Availability of a noninvasive method will expand the frequency of testing and the number of individuals willing to monitor glucose, recommended by results of the DCCT. Glucose in saliva ultrafiltrate collected in our current product, the SalivaSac(TM), accurately predicts blood glucose and is less variable than whole saliva. Current glucose monitors cannot detect the lowest saliva concentrations. Therefore, two methods for glucose detection, enhanced colorimetry and a new method using chemiluminescence, will be compared. The latter is proposed to increase sensitivity to low concentrations of saliva glucose in hypoglycemia. The approaches will be compared for sensitivity, speed of response, effects of sample matrix, and the simplicity, cost and durability of instrumentation. Factors that may influence the quality of the sample, such as food residue, blood in the mouth, and rinsing will be investigated. Feasibility will be demonstrated if saliva predicts blood glucose levels in diabetic and hypoglycemic patients recruited in an IRB-approved study. Phase II will be used to construct a prototype instrument for home use and test the device in a diverse diabetic population.
The new device will provide a noninvasive means of routine glucose monitoring for diabetics, a market estimated at greater than $500 million per annum. The proposed method is superior to blood sampling by its noninvasive nature, and will also enlarge the market by expanding the practice of monitoring to large groups whose failure to maintain diabetic control is the source of costly and debilitating late complications.
The purpose of this project is to: (a) design and pilot test the first instructional lessons and two strategies of a new program for creating learning communities in inclusive elementary mainstream classrooms for students with disabilities who are at risk for academic and social failure in the general education classroom, and (b) develop and empirically validate a set of procedures and materials that are necessary for effectively and efficiently producing mastery of the strategies. Three major goals will be associated with the program: (a) creating a safe (i.e, both physically and psychologically safe) environment within which students with disabilities can become involved in whole-class activities without fear of rejection; (b) ensuring these students' active involvement throughout the school day; and (c) enhancing these students' learning and performance. The experimental design will combine a pretest-posttest control group design and a posttest-only design to determine the effects of the instructional program on student knowledge and performance of the Community-Building Strategies, academic outcomes, peer acceptance, and feelings of belonging, safety, and support.
PROPOSED COMMERCIAL APPLICATION: The materials that comprise the program, a teacher's manual and student materials associated with the Community-building Strategies to be developed, will be commercially published and distributed by Edge Enterprises, Inc. These materials will be available to teachers throughout the nation.
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(Don't confuse commercializable with available. Any evidence of demand? Who would invest in development except the government? )

Lots of wiggle room between hard science and feel-good science. Your next shot - August 15.

A Bigger Technology Pork Barrel. Lewis Branscom has a vision. ATP should delegate to individual states or regional coalitions of states the responsibility for nominating industries that are critical to their economic development goals and then pulling together a team drawn from industry, universities, labor, nd state officials that would apply to ATP for support. ATP's role would be to focus on technical merit in making the awards. The states would also be expected to make post-project evaluations of the economic impact of the program. [Issues in Science and Technology, Spring 1997] Can you imagine the politics? Iowa or Georgia or New Mexico decides that lasers are its future industry. All the beneficiaries line up: politicians and labor for jobs, companies for subsidies, universities for grants, state officials for job security. They concoct a proposal built on a web of economic assumptions about the impact of laser technology in Iowa. (Some money would surely be better than no money, especially if 98% of it came from the other 49 states.) The Iowa Congressional delegation sees the merits and pressures NIST (or even earmarks ATP). After $50M, the state issues a rosy evaluation of the potential value to the nation of high technology in the global marketplace, blah, blah, blah. Soon, the money would be flooding into the states and districts of the oversight and appropriations committees. Even Bud Schuster might blush. Lew Branscom, do you believe that "technical merit" dominates public spending? Lessons from Apple...Chutzpah of the year award: To former Apple Computer CEO Gil Amelio, who plans to address the Commonwealth Club of San Francisco next Tuesday. Title of his talk:``Managing Change in Troubled Companies.'' Earth to Gil, earth to Gil, come in Gil. (I actually hear he plans to spend most of the speech talking about Apple.) [Herb Greenberg, SFChronicle, Jul25] Given that Amelio may have been in a position like the CEO of Betamax, it's a little harsh to say that because he failed he has no lessons to convey. Apple's game was probably lost a long time ago to IBM-Wintel. It just hung on longer than Beta. SBIR lovers, the best technology isn't enough, even if it is the most user-friendly technology. You also need the craftiness of a Bill Gates. And you will get none of that from romancing government.

Only 286 IPOs came to market during the first half of 1997, and more than 70 turned out to be big disappointments, although the market picked up in the past month. That total compares with 420 in the first half of a record-breaking 1996 that eventually produced 875 IPOs worth a dramatic $51 billion. [A Leckey, Chicago Tribune, Jul 27]

On SematechMe too, says Citibank. If you're gonna give away tax breaks for what we and others would do anyway, we want some, too. We're gonna invest in new enterprises through our VC arms because we're making money on them. But, if you're gonna abandon the conservative idea of a economically neutral tax structure, and complicate the tax code with special breaks, give us some, too. Stephanie Mehta's WSJ piece July 21 describes how Big Boys Back Cut in Venture-Gains Tax. After all, why should we pay the price of our conservative principles we spout if there's money to be made in tax breaks? Will small business head for the trough, too, while spouting about intrusive government and complicated tax rules. The Citibanks can afford and even exploit complex tax codes.

It's a classic government program: producing a dime's worth of value for every dollar spent.... The government probably spent $750M before it pulled the plug .. a subsidy to some of the richest corporations in the world. [TJ Rodgers, The American Enterprise, J/A97]

What is NIH SBIR Thinking?

(Jul 25) The August 15 SBIR deadline again poses a problem for NIH - SBIR is neither a natural constituency nor a natural way of life. So, NIH salutes commercialization while funding almost any kind of thing. Its public SBIR speech invites: with our mission of biomedical and behavioral research, we are as long as we are broad. Any project that fits that mission is welcomed. Research with commercialization potential, that's what SBIR/STTR is all about. While most titles sound like science, the behaviorists revel in virtue: smoke-ender videos, radio advertising for eating habits, career decision making, sexual harassment sensitivity training, and helping granny cross the street. The awards list suggests no discernible standard in any institute. The peers who review the proposals can do whatever appeals in their guarded worlds, which leads to random tastes from random peers. So propose your favorite science; anything could happen in $250M.

It Takes More Than Enthusiasm. As so many SBIR winners find out when the SBIR money ends, it takes more than enthusiasm for the idea to make a business of it (other than spending government R&D money). Fooling the government into believing you had a commercializable idea (often by mutual self-deception), doesn't extend past the last SBIR dollar. In the real world also. Idea Market, the first grad of Idealab's incubator, folded and moved, sans employees, from Texas back to Idealab's home base in California. The stranded employees grumbled of mismanagement - fancy offices and over-promising its pay-per-view Internet product. Hubris always looks bad afterwards. [story from LA Times, Jul 17]

Fans and beneficiaries of SBIR and other subsidies should probably avoid Terence Kealey's new book The Economic Laws of Scientific Research wherein he claims that state support of science stagnates and even debilitates a healthy economy. Fred Hapgood's review in Wired Aug 97 says Kealey didn't criticize far enough, that the homogeneity forced by the funding process leaves science without a cultural richness. Stand by for hate-mail from the science world and a race to be the first scientist to label the book science-fiction. With the AAAS already bleating about PhDs being denied funding for good science, look for an attack on SBIR when re-authorization comes round.

NIH Relief for UPS Strike
(Aug 14)despite the government's normal inflexibility on receipt of proposals, Minnesota Project Innovation tells its clients that relief can be had. Says Pat Dillon of MPI: your cover letter should include a paragraph requesting a receipt waiver due to the UPS strike.For Example: Due to the UPS strike, XYZ Corp. is requesting a waiver in respect to the receipt of the proposal. (The cover letter and application should be dated and submitted ASAP!) For more information on a waiver, go to page 13 of the solicitation. Whether the scheme works remains to be seen. MPI offers its shipper to all Minnesota clients.

More to Small Business Republicans seem to be reconsidering their torching of the Commerce Department, says the Wall Street Journal, Jul 11. And to help it along, Commerce Secretary Daley has promised a greater share of ATP grants to small business. Which we hope does not mean $10M for GM and $100K for Templex Technology and a claim that small business got half the awards. Of course, if you think that ATP means nothing in a booming technology-rich $7T economy anyway, you don't much care about the distribution (unless you're a beneficiary). On any economic analysis, ATP is a tough policy to justify, being now only a remnant of the Japan scare of the 80s.

New York wants more VC money. A bill in the New York legislature would provide insurance companies with state tax credits to create VC pools for investment in New York firms. The funds could total $100 million. Said the legislator in chief Assembly Speaker Sheldon Silver For its size, New York has fared poorly in generating venture capital investments in its high-tech and other new or emerging businesses The pools could invest in firms with fewer than 100 employees or with less than $5 million in gross annual revenue and fewer than 200 employees. The insurer would receive a tax credit equal to 100 percent of the invested funds, at the rate of 10 percent a year. Why does New York, the free-world free-money capital, do such government things other than tax breaks for supporters? Legislator Herman Farrell said New York currently is being "out-hustled" by other states. "For the first half of 1996, New York ranked 15th in terms of venture dollars invested," he said. "That's not good enough." But, RPI's business school assistant dean, Mark Rice says that having a pool of available venture capital will not, in and of itself, spur economic growth. You need entrepreneurs creating worthy companies. Maybe SBIR could also encourage the right entrepreneurs who would help New York's rise above lowly 15th. If SBIR focused more on entrepreneuring and less on research. [Story from Capital District Business Review, July 7]

A Different Approach in Florida. Central Florida Innovation Corp, a not-for-profit corporation that provides business development services to early technology companies, wants a $5 million venture capital fund it can use to cultivate emerging high-tech firms in the Orlando area. New chair Ed Timberlake hopes to have the venture capital fund in place by early 1998, after securing contributions from telecommunications companies, power companies and others "with a vested interest in seeing technology businesses expand in Central Florida." CFIC is funded by corporate and government sources, including Lockheed Martin Corp, Enterprise Florida, the city of Orlando, Orange County and the University of Central Florida. [Paul Dillon, Orlando Business Journal, July 7]

SBIR for Software?After funding Yahoo for a huge profit, Softbank has invested $353M in US tech startups with little profit. [San Jose Mercury, July 7] Q. With VCs like Softbank and Hummer Winblad grasping for every potentially profitable software start-up, why does the government need to sink SBIR money into the industry? Answer: if SBIR is about commercialization, SBIR needn't. But it will anyway. Why? 1) many agencies don't think small companies can do big or important technology and so they push minor projects, like specialty software, to SBs; 2) many agencies don't care about commercialization. A Tale of Two CompaniesTwo SBIR companies ran help-wanted ads in the IEEE monthly. Company A says:dedicated to technical excellence ...for over 25 years owned and operated by its technical staff of which 75% hold advanced degrees. Company B says: a dynamic and growing high technology company engaged in revolutionary technological endeavors that others are too timid to undertake. Which company should get SBIR? See Reveo Inc 's products emerging from a little SBIR.

A large Korean electronics company just advertised senior exec positions, hoping to attract Korean expats who will return and bring with them their American experience. The company advertised in US-based Korean language newspapers. It also placed a few free ads on the Web. Most of the candidates and all the hires came from the Web. This is why classified ads will eventually disappear from printed daily newspapers. [Forbes, Jul 7, 1997]. A message lies therein for US high tech companies. No it's not any form of economic nationalism. It's that your Website is worth more than you think and will do more harm than you hoped. The usual drivel you write in SBIR proposals may do you more harm than good in your Website. It's just a political grab bag. Whoever can get a subsidy takes it, says WC Gale - a Brookings tax economist - about corporate welfare (not unrelated to SBIR). And says Howard Gleckman in Business Week, July 14, Never mind that those loopholes rarely encourage economic growth, as their backers claim. At best, they are a waste of taxpayers money. At worst, they actually discourage innovation by subsidizing old technologies. The SBIR defenders have yet to refute the findings of Lerner and of Wallsten, neither of whom found any growth commensurate with the billions spent on SBIR. And most agencies do favor old technology - it's so comfy.

Does SBIR Do Good? or does it just substitute government money for what would have been done anyway? One way NOT to find the answer is to ask the beneficiaries who will gush testimonials and form support groups to politic for more. Two people have asked the right questions: Josh Lerner at Harvard and Scott Wallsten, a grad student at Stanford, with answers that the beneficiaries don't want to hear. Wallsten found that SBIR had no beneficial effect on R&D spending nor jobs nor sales, a mere crowd-out effect. Wallsten's mentor is Roger Noll, an advocate of keeping government bungling out of technology. Lerner, who found recently relative growth in employment only in SBIR firms in high VC areas, complimented Wallsten's work. No, it's not new news; the story appeared in Science, 17 May 96. Such analyses put pressure on the beneficiaries to do more that just parade themselves as all-American good-guys and therefore deserving of the dole (investment). Economic nationalism fading as both is and Japan falter; affirmative action is under attack (SBIR is affirmative action); and evidence is growing that SBIR is no better than letting the federal agencies run their R&D programs without micromanagement and special pleading. The SBIR world needs a story that makes SBIR look better than doing nothing. It hasn't yet got one.

How Much, Ritchie? At an MIT Enterprise Forum in New York, Ritchie Coryell (an NSF SBIR Manager) said SBIR investments range from $75K to $5M. [AlleyCat News, Jun97] Is that new NSF policy, Ritchie? Or is NSF still one of the cookie-cutter agencies that sets a max which perforce becomes the min (as in most government programs)? Formulas bring fewer complaints than judgments, don't they Ritchie? Don't blame Ritchie; he doesn't steer the ship of NSF.

Interpreting Testimony on SBIR. concentrated benefits and diffused costs means that over 90 percent of those testifying at appropriations hearings favor the appropriation in question Ed Crane, CATO Policy Report. The libertarians have that one right. Congressional Committees control who testifies and a group with a present benefit shouts louder than any potential beneficiaries and any opponents who oppose only on the basis of a tiny nick in taxes. Thus the odds are with continuation of SBIR which wouldn't help the deficit if it were killed anyway.

Fast Track's Hurdles. As DOD prepares for its FY98 SBIR solicitation, it has to decide whether to continue Fast Track past its two-year trial. The conventional bureaucrats, who want turf but not responsibility, will oppose the extension. The cooler heads in the Services who are actually helped or hurt by SBIR (Program Managers only count the beans) should be analyzing the first year's experience. They probably won't take the time and the Assistant Secretary of Defense champion Paul Kaminski has gone. That leaves Job Baron to make his case against the bureaucrats to an empty chair. Interested parties, not just the beneficiaries, should speak up now, preferably on some basis besides narrow self-interest.

Said a disillusioned government R&D manager: All the millions invested in diamond semiconductors are a complete waste of taxpayer's money. Sure, people can justify it by saying it can do this and that. But in the end, government/DoD creates the markets (by providing money), and then maintains the market by providing more money to keep it going. Then people further justify it be overstating the results and its importance. But there is no one to critically evaluate the real merits and truth. It is a vicious cycle. I know all the arguments, and you cannot convince me this is a market driven technology. Facts right; conclusion wrong. Millions (in SBIR alone) spent, unbounded hope, vested interests driving more spending, sunk costs as a rationale, government market maintenance, overstating results, no critical (and unbiased) evaluation. All true. But what's a government for? High risk (higher than we knew and too high for ordinary investors), high payoff (IF it works, at a competitive price): just right for military R&D. We do R&D after all to find our options only a few of which we will ever exercise. The options declined do not prove failure, but rather a living R&D program. Government R&D should not be doing market-driven technology anyway (despite the pleading by ATP-philes). It should fund SBIR in market-driven companies but no farther than needed to get the market's attention.

Is SBIR better than nothing? Or: did SBIR awardees grow faster than equivalent non-SBIR companies? One study says only in those areas where VC was already heavily funding companies. Everywhere else the growth rates were statistically inseparable. HBS's Josh Lerner (a former GAO auditor in SBIR) compared SBIR Phase 2 winners in 1983-1985 with a control group comprised of same size firms in the same industries - the first such controlled study. (Until now, the beneficiaries were never compared with doing nothing, only with what they were when SBIR began.) No surprise, they were bigger with SBIR than without. One inference: the government could have spread the SBIR money around by lottery to get the same result. Readers, look for: Lerner, Josh, 1997, "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program." Harvard Business School Working Paper #96-038 and NBER Working Paper No. 5753

[] was not a single invention, and not something the military was clamoring to have. Once [] was developed, there existed the separate but equally important task of persuading the military to use it effectively. [ML Wald's review of Buderi's book "The Invention that Changed the World", NYTimes, Jun22]. Has the Army's attitude changed? Does the Army's SBIR, for example, look for disruptive innovation or for tightly controlled improvements in support of present doctrine? Does the Army try to avoid disruptive innovation by ... ignoring it? Would you expect an oversight committee of generals to criticize too little reach for ideas they had never heard of? Buderi's book was not about either the personal computer or the tank or the atom bomb (which fit military doctrine of the time). [] was radar, invented by the Brits and brought to America for development and production in 1940. Today, since an invention has the same uphill struggle against entrenched interests, innovators should approach the military with no expectation of acceptance.

ATP's Future Unlike SBIR, ATP has to fight an annual appropriations battle where all the enemies get to propose elimination. Says Business WeekJun 23 many Republicans have their scalpels out for Presidential favorites that have business support, such as ... Commerce's $225M ATP. The GOP targets total only a few billion dollars but they're symbols of Big Government..."it's the red meat the GOP tosses to the right wing," scoffs Rep David Obey (D-WI). Maybe. Those red meat Republicans have so many holes in their toes from previous shootouts that one should not write off ATP yet. Just don't build a company around it. Bush/Sununu couldn't kill it nor could the 1995 Republicans who had a "mandate". Still, since ATP fundamentally conflicts with the precepts of free market government and free trade, it must thus invent a convenient fiction to justify its pork (just like the capital gains tax cuts).

How Does Government Invest in the Technology Future?
(Jun 17) Compare two views. "Seven savvy prognosticators - VCs, technology execs, developers and industry watchers" picked hot prospects in seven categories for Upside Jun 97. The picks in semiconductor manufacturing and microprocessors and mobile communications - all of interest to government - were all California companies: Form Factor, Rambus, Chromatic Research, Synaptics, InterWave, Metricom, and Vadem. Now ask how much did SBIR invest in those companies in the three years 1993-1995? Synaptics got $0.4M of something like $500M SBIR poured into California. Where then did the SBIR go in California 1993-1995? SBA data say that Physical Optics lapped the field - $28M. Two other large recipients: Deacon Research,- $6M, Mission Research - $6M. POC has been collecting huge sums since 1987; Mission Research is a government-style research house in four states. Deacon Research has at least attracted private capital for its spinoff GEMFIRE for serious business.

First Fast Track Results
(Apr 30) DOD's first round of Fast Track had some surprises. 27 of 28 qualified applicants won. 70% of the companies were in the 4:1 match rate (under 10 employees and never won a Phase 2 before). As expected, the prime funder was BMDO with 10 of the 27 awards in a program with only 10% of the DOD SBIR money. (The preferred BMDO Phase 1 awardees are market-driven companies.) Navy did 8, Air Force (with about a third of DOD's SBIR money) 4, and DARPA 4. Army awards come later. In all, DOD put up $20M for the third parties' $10M. That's $10M where almost none would have been invested without FT and the agencies might well have put nothing into such market-driven projects. The list of winners has only one veteran, Silicon Valley's ARACOR.

The Army's Criteria
(Apr 29) Can't figure out the Army's real SBIR criteria? Try to decipher what got Army Phase 2 money recently. You'll find a lot of safe and sane analysis and improvements by a lot of experienced SBIR companies.Characterization and Quantification of Missile Debris Hazard to Aircraft, Phase Signature Antenna Drive Diagnostics System, High-Precision, Robust Nonlinear and Intelligent Control for Advanced Weapon Pointing Systems, Neural Network Medical Decision Algorithms for Pre-Hospital Injury Severity and Risk Assessment, CADET: Course of Action Display and Evaluation Tool, Representing and Analyzing Mental Models, Computational Fluid Dynamics of Complex Three-Dimensional Multiphase Flowfields, Tracenet Tool (TNT): Tracing Requirements Through the Later Phases of System Development, T & E Hybrid Threat Simulation, CFD-Multiphase Flow, Exploiting Artificial Intelligence to Improve After Action Reviews for the Digitized Company Team, Biologically Motivated Qualitative Landmark Recognition Using Visual Cues, Network Simulation of Technical Architecture, Syzygy: A Software Metrics Global Database. Of course, you would expect a 200-year old institution to be conservative. What makes it tough to figure the Army is its secretive decisions by anonymous staffers who answer neither to the taxpayer nor to the competitors. No, a hidden umpire sends decisions down to the linesmen to announce. Plodding with big words seems the winning approach. And for the next round? Look to last year's Phase 1 list where nothing succeeds like excess. The usual names and the expected titles. Play safe; team with Foster-Miller (who won 7) or one of lesser top 50 SBIR winners. If you have something really innovative or commercializable, use the Army for practice and propose to BMDO or DARPA in January.

The DOD used to be the largest user of semiconductors and computer components by far. But now that the commercial sector has grown so dramatically, it doesn't make sense to support a protected industry just for military components....[the protected industry] will gradually disappear. Some components will still be made to certain milspecs for very special applications, but 99 percent will use standard industrial specs. Bill Perry's interview with The Red Herring (Jul97). Tell it to the SBIR topic writers and, more important, the SBIR judges who are still living the Cold War. Without a Perry and several layers of committed enforcers, the Services will do what they have done for their entire lives - what they want, with an eye to maximizing their budgets and the number of general officer positions.

Dual-Use?Many in the Armed Forces resist dual-use practices: Accustomed to technology driven solutions to strategic problems, they continue to put performance above cost and to give priority to long-term relationships with contractors (whose marketing departments are top-heavy with former military men). Think the same philosophy dominates the Service SBIR programs? Ask yourself about the top 200 SBIR winners in DOD: Why?

(Jun 13) a recognized leader in the transfer of Federal Laboratory technology to the private sector, is interested in expanding its partnerships with business, industry, academia and other federal laboratories through Cooperative Research and Development Agreements (CRDAs) (Believe such a claim at your own risk.) In the usual bureauspeak seeking the level of interest of potential partners with innovative concepts for individual and consortia partnerships to perform research of a mix of ARL funded and partner cost share activities electronics, micro-electro-mechanical devices, bio-detection, millimeter wave and microwave devices, acoustics, electro-chemistry for power generation, photonics and electro-optics. To augment the number of partners, the Sensors and Electron Devices Directorate (SEDD) within ARL will make its expertise, equipment and world class general laboratories and clean room facilities available for partnerships involving a combination of Adelphi-resident and geographically dispersed operations in the areas of sensor and electron device technology to other interested organizations in a cooperative, mutually beneficial-arrangement. See ARL's web page for more promises. Inquiries to Thomas Bower, (301)394-2102 or 2002; Fax: (301) 394-5420; Submit a brief two page White Paper to within 60 calendar days. Just don't expect any bonanza. CRADAs do not give money and the SB world's general response is that CRADAs are more trouble than they're worth. Still the agencies trumpet the number of CRADAs and pretend they do a lot of good. Return to Index

Does the laser industry really need government help? Jeff Bairstow, Laser Focus World editor says no. About ATP he says I'm hard pressed to find any major products that have surfaced as a result of this spending. ... An industry that is growing at double-digit rates ought to be able to fund its own research and development. ... Although I have a high regard for the scientific talents of NIST personnel, they rarely have an entrepreneurial businessman's grasp of what is likely to lead to a marketable product. The same goes for SBIR in any industry, which is why the federal agencies have captured SBIR as a mere extension of government R&D. At least when the Army uses SBIR for Army-only R&D, it knows what it is doing and will be the only one to suffer the consequences of any misjudgments of value.

Don't Listen, and Don't Let Congress HearThe unprecedented flood of venture capital pouring into high technology start-ups is feeding a nationwide outbreak of entrepreneurial fever. 'There's a river of money out there", says Ann Winblad, partner of Hummer Winblad. [P Harris, Technology Business, May/Jun97] Never mind, though, government money aficionados, Congress still believes your story about vulture capitalists and control of your children. And there's still a comfortable niche for the secondary feeders, like consultants who know how to get that $1.2B. Actually, government has a useful role in reducing the cliff-hanging risk of really new technology that not even business angels will touch but that could have a giant payoff if it works. Any other government role is just subsidizing what is either unmarketable and is distorting efficient capital flows. It's a shame that most of SBIR does the mere subsidizing rather than the first risk-reducing. Bureaucrats, why would expect them to understand? They don't care whether Congress hears but you entrepreneurs should.

The Evidence. With the entire government's experience in SBIR as a base, the SBA's testimony in support of SBIR provided two pieces of evidence. 1) that 24% of projects finishing Phase 2 had commercialization and 40% if products of more than one award are considered, and 2) that one firm had $100K in commercial orders from Lockheed-martin and Rockwell after Phase 2 ended. One conclusion from the evidence: a defendant getting that kind of representation in a criminal case could win an appeal on inadequate defense. Either SBA doesn't know much about making a case, or it doesn't care. One: I don't believe the 24% and 40% represents much real commercialization. Anyway it's the wrong statistic for investment. Investors measure total return, not percentage of units getting something. Politicians measure percent participation because each winner is one more vote regardless of size of success. Two: $100K sales to DOD aerospace primes after a hundreds of thou in a Phase 2 is hardly the best story SBA could tell. Could SBA be capable of exquisite satire? Does the government have a sense of humor after all but the incredibly poor taste to invoke it at the expense of a private company? Naaah! BMDO alone gets dollar-for-dollar of private money during Phase 2.

America's Top Growth
(May26) America's top 100 three-year growth companies again missed SBIR beneficiaries. Business Week's list (May 26) had lots of high-tech companies but none of even the best SBIR companies (like ATMI, HNC Software, Ortel, SDL). Nor does it include any of the top SBIR-getters before 1994. Not to worry, though, the SBIR-getters will be appealing to Congress to keep (and even expand SBIR) because of the great growth it will generate. And Congress will listen. The rule still applies: if you can't win in the marketplace, win in the legislature (and then join libertarian or conservative societies for a balanced budget).

Union Money, Union Labor, High-Tech Jobs
(May 26) New Jersey used $14.6 from the AFL-CIO Building Investment Trust Pension Fund to build a new center for high-tech companies. Union labor, of course, to build it. New Jersey politicians are competing with other states for high-tech employers and hand out things like buildings and bribes like Business Employment Incentive Program grants. One BEIP beneficiary will be EMCORE (Somerset, NJ) a frequent SBIR awardee and a recent IPO. The governor made the usual noises about the future and values. NJ also offers other financial help to companies: bond financing, loans or loan guarantees. Loans, however, are a two-edged sword. If your dream goes wrong, even for reasons out of your control (of course), you can walk away from an equity-funded company with your house. State loans, though, often carry some kind of forgiveness if you fail to balance a winner's share if you succeed

The Usual STTR Suspects
(May 23) The usual suspects said the usual things at the House SB Subcommittee hearing on extending STTR for three years to align it with SBIR's reauthorization cycle. The Republicans, especially the chair (Roscoe Bartlett, MD), liked it; the administration wants three more years, GAO said it couldn't say much for or against, and the beneficiaries told how wonderful it was to get the money. The usual targets were burned in effigy: Japanese industry, VCs, declining research funding, American industrial myopia. The beneficiaries extolled its virtues in robotic language (except Bob Pap of Accurate Automation, Chattanooga, TN). The companies with lots of SBIRs and STTRs must not have heard themselves talking about how SBIR was well designed to help rookie companies. Nobody asked the hard questions; but in a non-competitive hearing, who would? Look for three more years of STTR.

Myths Confirmed The myth that SBIR is used to develop new marketable technology is confirmed by awards such as:
Determining the Size and Relative Efficiency of Corporate Infrastructure Development of a dynamic simulation model offers an innovative means for analyzing the complex feedback interactions that link product support, infrastructure size and manpower levels. The system dynamics methodology provides a powerful model-building foundation with a proven track record. System dynamics captures the non-linear feedback causality that drives system behavior over time. The resulting model will assist in quantifying tradeoffs among cost, performance and personnel. Model users will be able to define alternative "what-if?" scenarios and trace the consequences of these scenarios on infrastructure size, manning and cost over time. Anybody remember operations research? Is there any university math or industrial engineering department not attempting such models? Is there any corporation likely to adopt the results that couldn't hire the research done in a lively auction whenever it felt a need? What new market will emerge - another management fad with its own consultant guild?

With many large companies scaling back internal R&D, small product-development companies are seizing a chance to pick up the slack. [R Ho, Wall Street Journal, Apr 22, 1997] The trend should help SBIR companies who can then find strategic partners for Phase 2. Now if only the agencies would encourage realistic partnering by favoring proposals with provable prospects instead of vague speculation on the societal benefit to somebody, somewhere, sometime. The difficulty with the scheme is that large firms, like large federal agencies, prefer incremental improvement to disruptive innovation. After all, real innovations have no present market.

Compressing Airplanes A NASA article praises the technology and assumes system benefit from compressing aircraft spacing with laser radar vortex monitoring. Ben Barker [Photonics Spectra Apr97]and friends say that the SBIR-sponsored laser radar transceiver of Coherent Technologies (Boulder, CO) would enable pilots to maintain closer spacing in not-so-clear weather by finding any dangerous vortices that trail heavy planes. Barker argues that in clear weather pilots determine how far to trail the plane ahead to avoid wake vortices and that with a laser gizmo (at Hartsfield, for example) they could fly closer when the pilot cannot see the plane in front by trusting the vortex reading. That's a lot of trust even for computer-trusting pilots since no pilot can today see a vortex in clear air anyway. The benefit to the public is avoiding "increased costs and schedule disruptions". So, the question: is this a good SBIR project? Well, it's a small company doing research in technology with an assumed public benefit. But the question is not whether the laser works, it's whether a credible system could be built around it. Which is far beyond the small firm's influence or charter. In effect, the research organization (NASA) is using SBIR to procure an instrument for its long term research with rosy assertions about the benefits. While that's standard for government R&D, for economics-based SBIR how many instruments will be sold in the next decade? Is the company a co-conspirator, or merely a willing victim? Depends on what the company thinks it is doing. Barker doesn't ask. After all, who's losing anything anyway? The government does worthy research, a small company gets money, and Colorado gets jobs. Ask the start-up high-tech companies in Pennsylvania or Oregon with market competitive products whose SBIR proposals were declined by NASA.

"If industry is capable of doing 'it', then I believe that industry should be left to do it." Tom thought that projects of such scope and duration, and uncertainty that industry could not practically finance them were the proper subjects of government funding. His examples? The national telecom network and the Human Genome Project. Tom is Tom Campbell. JD from Harvard, PhD in economics from Chicago, editor of Harvard law Review, law clerk to Justice White, professor at Stanford, and now US Representative for Silicon Valley. [The Red Herring, Jun97]

States are competing for top scientists in the hope that they will be a powerful lure for high-tech start-ups that want to be around prestige labs and that these entrepreneurs will also attract VC money for the scientists. [G Jaffe, Wall Street Journal, Apr 23, 1997] . A nice theory that will appeal to politicians who traffic in money for votes. The Senators from Iowa will jump aboard the theory and solemnly declare that research is as well done in Iowa as anywhere. To further help the cause, they will pressure the federal R&D agencies to apportion funding to states like Iowa (can't be too obvious). Federal agencies with programs like SBIR will curry favor and compromise the principle of a national competition by pushing awards into have-not states. And as long as the agency is never accountable for investment efficiency, Senators will smile at budget time. And if there's one thing an SES wants at budget time, it's smiling Senators. The bureaucrat gets his reward from the power and security of a larger budget, not from an economic return on investment.

With leadership comes responsibility. We will get either the government we want or the government we deserve. High technology has reached prime time. G Sollman (chair AEA), Upside, May97. On why an industry that is 10% of GDP cannot sit by as a uninterested spectator and let the government act or fail to act. Completely separate from the AEA campaign is John Doerr's (if you don't know, you're not ready for VC investment) plan to get up a bipartisan group to influence legislation and elections. TJ Rodgers, an articulate and vocal critic of government involvement, says forget it and get back to making money. SBIR advocates learned that 15 years ago although their solution (adopted and doubled) was a dole.

Wanna change the ATP program? Commerce is accepting public comment through June 1. Visit ATP's invitation for info. No, don't bother saying that your technology is more important than anybody else's and don't appeal to any Critical Technology Mania. It's highly questionable that ATP should even pick technologies to focus on anyway; that's just a sub-optimization game driven by politics and not economics. But then there's lots of evidence that ATP is a general waste of time and taxes. If you think it has merit worth shaping, you want to read its self-report for re-inforcement. .

The Air Force Phillips Lab advertises SVS, Inc as its commercial success story. It says: development of the Low Cost Space Structure (LCSS). ... to demonstrate that large aperture, sparse-array telescopes can be designed, fabricated, and deployed on small satellites to support surveillance requirements at low cost. As a spin-off, SVS developed a commercial program called INSPECT [which] applies precision pointing, advanced pattern recognition algorithms, and image processing techniques to real-time fault isolation techniques for power utilities. Sales of the first two INSPECT systems will exceed $600,000....[It consists of ] Opti-Trak, a camera, and a gimbal-the mechanical device used to position a camera-is attached to a helicopter, which flies over the power lines. "We point the camera at the area.. Based on this inspection, we'll make a decision as to whether repair is necessary. The INSPECT system can examine images very precisely, which has tremendous advantages over present inspection techniques...In just two years, we have grown from a start-up company of three employees to 32 employees." says CEO Paul Shirley Shirley as an AF captain reviewed SBIR proposals for BMDO. Good employee growth, Paul, but "tremendous" usually means "we got no good data".

Help still delayed
(Apr 28) The DOD's pilot project to help SBIR companies is still on hold. In principle, it's simple: the government will let SBIR companies spend extra SBIR money to buy advice from an advice vendor, something the US consulting industry sells all day, every day. Only it's not so easy: the enabling law mandates a single advice vendor. Bonanza for the vendor while consumers get Hobson's choice. Value to the public? Depends on your notions of whether DOD knows enough to or even should dispense advice to private companies on commercial markets. One problem with limiting access to the advice in any way is whether those who get it thereby gain an advantage in Phase 2 competition over those who don't get it. DOD's doing it, though, makes a good cover for its ignoring market return as an SBIR criterion. Perhaps DOD could have emulated the Federal Health Benefits Program where providers who agree to general terms and rates can compete for the employee's (and retiree's) insurance business for which the government pays part of the premium. Co-payment would drive the companies to shop more carefully than would a free ride on government money. (Note: it's not really extra, it's robbed from the SBIR set-aside.)

Says a typical SBIR proposal about its commercial benefits: our new laparoscopic technology will reduce the average hospital stay and cost of gall bladder surgery patients by 25% and therefore reduce the high cost of medical care in the US and patients will recover in days not weeks. Great idea (if you're not making a living selling hospital care). Most proposers stop reasoning right there as if government should swoon over the obvious and heroic prospects for societal benefits. (Which is OK since the evidence is that government R&D advocates don't look any farther anyway.) The problem: assuming you can change only one thing. Actual result: total gall bladder insurance payments up 11%. Why? More gall bladder sufferers willing to submit their symptoms to surgery. Is there an SBIR problem that needs fixing here? Yes and No. For deciding among most SBIR proposals, superficial comparison is probably good enough since few government R&D SBIR deciders have the inclination to cross-examine such testimony. And the worst proposals don't make any economic analysis at all. [Facts from E Tenner, "Why Things Bite Back", 1996]

Get in the Database, or Else
(Apr 16) Therefore, I am proposing regulations requiring that, for awards resulting from solicitations issued after September 30, 1997, the contractor must be registered in the CCR or the contract cannot be awarded. This requirement will apply to all solicitations and awards s/Eleanor Spector Director, Defense Procurement. Thus will SBIR join the Congressionally mandated move to get the federal government out of paper checks. Not exactly a Big Brother move since every company that takes money is already in several databases. Return to Index

Tiger Woods Against SBIR No, Tiger has no known opinion on the subject. But James Glassman does in his Tiger Woods's Innovation Washington Post Apr 15. Glassman argues (correctly) that the source of innovation is trial, error, adoption. It's the same process that occurs, over and over, in science, art and business. It's what makes an economy grow and people prosper. Economist Paul Romer says that imagination is more important then knowledge to which Glassman adds that government isn't structured to create Romer-style inventions, nor could it be. To see how government handles innovation tour the SBIR topics at random. One agency says it wants from Phase 1: "Sufficient progress must be accomplished to make a low risk go/no go decision for a phase II contract". That topic is followed by a string of standard analysis topics done by tons of university professors in pursuit of knowledge, as another finite element model. No risk, no product, no end.

The technology market changes so quickly that any company which fails to adjust will get pushed out. The Economist, Mar29, 1997. Have faith, losers; look to SBIR to save you. Convince government that propping up is a good thing. Even after a hundred SBIRs government still accepts claims that commercialization is just ahead. Then get a political bandwagon rolling to keep a big SBIR alive and depend on government agencies either not knowing or not caring that a long string of SBIR awards is a sign of something wrong. In case you think you're in danger, ask any agency what percent of awards goes to new companies. .

For a few chuckles, read the DOD's commercialization rationalization for its SBIR topics. DOD's internal system for topic invention requires that a government technology expert tell private companies what the commercial prospects are for the technology. Much ink flows with no useful transfer of information as the authors revel in a vague bureaucratic style. BMDO did and does skip the facade to insist rather that every proposing company convince BMDO that the company's commercialization of its technology was better than the other companies' stories. Isn't that what market competition means?

DARPA's Winners
(Mar 26) See DARPA's Winner List for DOD 97.1 SBIR. Some old familiar names: Aerodyne Research, CFD Research, Ceramic Composites, Cybernet Systems, Foster Miller, GINER, Intelligent Automation, Mission Research, Techno-Sciences, companies who know how to play to government's predilection for safe and predictable research. If that's what you want from government and you are a small R&D business willing to take small contracts, you belong in SBIR. Return to Index

Government Help?In a round table discussion at a local entrepreneurs support group, several kept asking how the government was gong to help them find commercial partners. The answer: not a government function. How can entrepreneurs be for less government and lower taxes and a balanced budget and still want government to hold their hands?

Also at PITTCON, the NSF Director Lane talked about partnerships and getting industry into the flow on science and technology given that federal funding of science is "uncertain". The usual cry from bureaus handing out money for any purpose. Lane did note that half the US economic growth in the last 50 years has come from Sci-Tech. His rhetorical question was, "Where will we get tomorrow's innovations?" He could start by fixing NSF's attitude toward SBIR, not just more money for Phase 2 but also a flexible approach to projects that include real partnering in Phase 2. The present scheme relies on non-binding letters of commitment AFTER the government money has been spent.

The "real" economics of research, according to Kealey, are as follows: "The First Law of Funding for Civil R&D states that the percentage of national GDP spent (on science) increases with national GDP per capita; The Second Law states the public and private funding displace each other. The Third Law states that the public and private displacements are not equal: public funds displace more than they do themselves provide." Chicago Tribune, Feb 24,1997. A research project last year found that SBIR awards actually lowered the R&D spending by the winning companies.

There's very little commercially viable technology left at NASA. Most of it has already been tapped,says John Gee, former director of NASA's Ames Technology Incubator and now CEO of one of the incubated. Says iTV's Langford There is a tremendous amount of technology that could be used elsewhere. But most of it has to be shrunk down into something commercially viable. The technology that costs $100,000 has to be reduced to something that costs only $2000. [quoted from The Red Herring Apr97]. Despite his hype-alerting "tremendous", Langford strikes the core of government-supported technology's market problem, including SBIR - cost. Read, for example, the Phase 2 proposals to BMDO and ask: will this cost little enough to induce any but boutique buyers? And if you think the answer is mostly NO, imagine what's happening in the SBIR programs that do not demand market realism in their Phase 2s.

Technology Partnering: Can You Count on the Government
(Feb 26) A conference on the fantasy that government can help technology move to the market. March 3-4 sponsored apparently by McGraw Hill Companies' Federal Technology Report. In general you can count on the government to posture about partnerships. But it won't throw money and cannot force marriages. It's also fickle: in election 1992 season the Congress couldn't wait to throw money at Defense conversion. When the Clinton administration combined several of the potpourri programs into the Technology Reinvestment Program and made great fanfare of the dual-use, the military moaned about diversion and the Republicans shut down TRP and the Democratic ATP program. Commercializing isn't on the military's agenda when its toys can't be fully funded. NASA is actually trying some funded experiments like incubator and strategic partnering. Commerce doesn't know R&D and is always ducking Republican bullets anyway. Since no agency has any economic interest in technology commercialization, no agency will stick with a sensible approach that makes economic sense. Whatever any program does is always in peril of the next election. Can you count on government? Why should you try?

Self Serving Question:
William Buckley years ago said that he would rather be governed by the first 200 names in the Boston phone book than by the faculty at Harvard. Dinesh D'Souza (American Enterprise Inst) explains in Feb 24 Forbes ("Selling babies") that intellectuals do not necessarily make good rulers. The self-serving question: would BMDO's SBIR have its commercial success today if the most knowledgeable technical experts had decided which projects to fund from 1987 to 1996?

One drawback to the Information Age is that it exposes and demystifies all governments, exacerbating the loss of confidence in them. In some areas, governments are struggling to make themselves relevant. Yet governments themselves contribute mightily to that loss of faith. They tend to do things that succeed in the short term but fail in the long term. For example, the social welfare systems that European nations erected after World War II to protect people are now hurting them, as they steer away jobs and wealth. Unemployment is rampant.. [J Dobrzynski, NewYorkTimes, Feb 9, 1997]. Could SBIR be in that category of government's struggling futilely to be relevant in the world's most vibrant marketplace by allowing the short-termers to decide which companies get the help? Or is it merely harmless self-deception since the R&D money that was taxed from ordinary government R&D merely gets recycled back to that ordinary R&D by the short-termers who either do not understand markets or reject the underlying premise of SBIR?

Love That 4-for-1
(Feb 7) Preliminary data for DOD's Fast Track SBIR. About ten percent of Phase 2 proposals are FT, 29 FT proposals, three-fourths at 4:1 match and one-fourth at 2:1. Love that 4-for-1. No applicants for equal match. Of those proposals which have reached a funding decision (it's not completely automatic, or who would need administrators), over 90 percent got Phase II funding, and all got interim funding ($40K). The cash-supplying third parties are drawn roughly evenly among VC's, other companies, angel investors, and DoD acquisition programs. Info from DOD's Jon Baron, chief advocate and architect of Fast Track which is a rich opportunity for the market-driven. (Note: a firm can get the 4:1 only for its first-ever SBIR and then it can get the 2:1 no more than four times.)

Wait a minute! Why so much babble about IPO when so few SBIR companies do it? It's not just that such news is easy to find, it's also that IPO is the top rung on the greasy capitalistic ladder for rookie companies. If IPOs don't do well, venture money will hang back from new concepts. Most SBIR companies don't do it also because the federal agencies actually select against IPO-potential companies. The Feds just want their research questions answered. But.... .....One unique fed manager - DOD's Jon Baron - wants to help companies whose R&D will lead to public benefit from diffusion of technology. He knows that if wider investment isn't attracted, the diffusion will go nowhere. Good luck, Jon, at Fast Track and whatever follows. Unfortunately for Jon's goals, the Army, Navy, and AirForce don't see it that way; they see SBIR as just the mandated small business part of their R&D missions.

Compositers' Dayton Dream
The composite materials dreamers have a new partner. The National Center for Composite Systems Technology wants to forge new manufacturing opportunities in the Dayton (OH) area. The Miami Valley Economic Development Coalition hired the University of Dayton Research Institute to run it with $39 million in state, federal and industrial funding. The center is part of the coalition's efforts to utilize advanced materials technology at Wright-Patterson Air Force Base for local economic development. Its first project involves creating a pickup truck cargo section out of fiber-reinforced plastic instead of heavier steel. [The Business News (Dayton, OH) Dec 16]. DOD has sunk a lot of SBIR money into composites in the face of adverse economics as the cost-insensitive military uses SBIR to fund companies for contract R&D. The companies get the money and the military ignores the company's commercialization. It's 30 gallons of kerosene to light the barbecue. Good luck, Dayton. Be sure not to call it corporate welfare nor publicly calculate the cost per job. (No surprise, most publicly supported job schemes have an outrageous cost per job.) Ominous signs: slow loading Website with black background and labyrinth as symbol.]

Measures? One SBIR manager said this about statistics. I don't worry about the stats you mentioned. Our SBIR is totally integrated into our core R&E programs, and the efforts are reviewed several times a year from a technical standpoint, along with the normal core program. My [SBIR] budget is a drop in the bucket. I really don't care about most of the stats you mentioned and the leadership has never asked for stats like that. The top twenty SBIR winners must drool all the way to the bank and to their proposal machines. Reminds one of When the money keeps rolling out/ You don't keep books./ You can tell you've done well by the happy grateful looks. / Accountants only slow things down, figures get in the way./ Never been a fund like the Foundation Eva Peron. T Rice, "Evita"

Talented New SB Chair
The House SB Committee chair will be James Talent of Missouri. Wall Street Journal (Dec 24) says Talent is favored by the SB lobbyists. His WebSite is: .

Meet the ATP Program
ATP will talk to the public before its March 19 closure date for full proposals. Meet ATP in Boston Jan 6, Phoenix and Chicago Jan 8, Kansas City and Atlanta Jan 10, Gaithersburg Jan 13. To register call 1-800-ATP-FUND or e-mail to ATP is the dream of the crowd who want government to intervene in commercial markets to help the world's most successful market system be competitive. Cynics call it corporate welfare. Minnesotans, who did not merit a meeting, can contact Pat Dillon at MPI from whom these facts were copied.

Just Some Business Guy
How government is kidding itself about SBIR as a commercial vehicle. Company Q went to discuss Phase 2 prospects with an agency decision maker. The agency expert in Q's technology was invited to join in talks with Q's CEO and its CTO, Leader, widely respected in his field. At the last minute Leader had to cancel, thus leaving the meeting to the CEO, an old hand at high-tech start-ups. When later asked about the meeting and the proposal in his in-box, the agency expert said, "Oh, that! (1) Leader didn't make it; just some business guy; (2) I was late, anyway; (3) I can't find my in-box!". The phrase "just some business guy" shows the problem: agencies don't care about a small business as a business, just as an R&D contractor. The day before, CEO had a frustrating meeting with another technical expert monitoring the Phase 1 contract. That expert wanted only to measure success against the scope of work instead of against the larger objective. He, too, couldn't see that business success would lead to the agency technical success. Anyone think SBIR is doing what Congress wanted and therefore deserves more money?

Your Lobby, You SBIR AficionadosThe Small Business Technology Alliance: Supporting Technology Innovation and Entrepreneurship has formed an industry association. The founding board has a gaggle of SBIR multiple winners and plans to engage in public policy advocacy (lobbying), executive (small) networking, financial conferences (to meet investors), web page (fashionable in 1996 even if the executives have trouble with those new-fangled things and the flyer has no e-mail address listed), and business support services (buying club). Inquiries to 415-813-9124. With SBIR coming up for re-authorization in 1999 and facing a contestable claim of commercial impact, lobbying would seem wise for a good Republican principle - what you can't win in the marketplace, win in the legislature. For a perspective on what legislatures achieve, we could listen to Terence Kealey: The US proves that privately funded science is profitable, but its government science is as wasteful as everybody else's. . The Sunday Times, Oct 13, 1996

The National Science Foundation will grow its Phase 2 SBIR awards to $500K "to gain parity with DOD", says The Boston Globe, (Nov 6). Smart move, wrong reason. The one-size-fits-all approach, like DOD's, avoids a decision that could bring criticism - how much is enough. NSF governmentally explained fewer expected awards in FY97 by this higher amount per award. A capitalist, by stark contrast, wouldn't ask nor answer a question of how many awards, only total return. Politicians worry about number of participants The former ceiling (and consequently floor) of $300K guaranteed a minor impact program. A right reason would give the best few enough money for success of a new disruptive technology.

National Conference Vibes
If the smaller than usual crowd at the National SBIR Conference (Oct 28-30) listened they would have heard that the military services are still doing lip service to commercialization. The basic problem is that except for the early 80s, the military always sensed a shrinking budget "next year "in these times of limited resources". DOD management structure also works against long-term investment in that every uniformed military manager must make a mark in 2-3 years (a parallel to the political appointee pressure). So, they are still seeking more bang for the buck (and other well-worn metaphors) by using SBIR as just another source of R&D funds. The restriction to small firms cannot be legally avoided but the commercialization mandate can be safely ignored. BMDO may stand alone against the trend by taking the longer view. The DOD Program Manager, Jon Baron, a student of the societal return from innovation, struggles to inject the dual-use spirit into the military tradition. The next conference 13-15 Nov in Anaheim.

For those companies needing the sagest advice on government SBIR contracting, the sage has moved. Bob McIntosh, who wrote about 70 contracts a year for BMDO SBIR, is now at 205-539-9014, fax 539-7945. E-mail: Bob could always come up with a prompt contract no matter how tortuous the terms of private sector participation I imposed as a condition for funding. So many other COs would call to say, "You know you really can't do this."

Ada Crusada ....
The following was Netcast: As I pointed out many years ago, there is little to no mention of Ada anywhere in these solicitations. Given that all SBIR is new activities, any programming software related projects MUST be done in Ada, thanks to the Ada Mandate still in force.
Given that it would cost the DoD absolutely nothing to include with each such software abstract one additional line such as "Any proposals submitted for this project must use the Ada programming language", one has to ask why the DoD is so apathetic to promoting Ada that it doesn't take advantage of the SBIR process. Here is a chance to foster Ada use in new initiatives, by smaller entrepreneurial companies, and the DoD does absolutely nothing.
A fellow assailed me at at public conference last year with this same speech and said the proof of commercial appeal is that Boeing used Ada in the 777. One sunny day does not make a summer.....

.....A Different View
[defense contractors] tend to approach the capital markets with a DOD contractor mindset. It's a sort of "We have this technology and it will do wonderful things because our lead scientist believes in it." rationale. Well, Wall Street's response will be "so what?". Investors need to see a business plan that contains extensive market analysis, return on investment figures, competitive assessments. Jon Kutler, interview in Technology Transfer Aug 1994 (Vol 19, No 2)

we have a critical mass of entrepreneurs in desperate need of equity capital, says president Kevin O'Connor of the Center for Economic Growth (Albany, NY).[quoted by Mike Farrell, Capital District Business Review, Oct 28, 1996] A convenient view for a think-tank which wouldn't be needed if capital were as plentiful as it seemingly wishes for. The equity capitalists, however, see a world of dreamers who can hardly spell business plan. New funds are forming all the time to invest the growing wealth emerging from the American dream, and if Social Security is privatized, it'll be open season for entrepreneurs as the price of normal business equity is bid up.

Five of Sixty Passed
Only five of the sixty recommendations from the 1995 White House Conference on Small Business have made it into legislation, says today's Minneapolis Star Tribune. (Nov 1). Minnesota got a gaggle of politicians, five Reps and one Senator plus Senator Welfare's rep, (in the silly electoral season, of course) to a meeting with 100 SB owners. The members of Congress and staffers listened and expressed their concern and, in some cases, support for the issues. Even the Republicans felt the group's pain and no doubt nodded often. Look for the next such meeting in October 1998. SBs elsewhere take note: keep the politicians listening if you want legislation.

DOD's Fall SBIR Closes Jan 8
DOD SBIR's agencies are answering technical questions about its fall SBIR solicitation. Face-to-face answers for next spring's solicitation will be available at the National SBIR ConferenceApril 2-4 in Orlando. Solicitation opened Oct 1 for Navy, Air Force, DARPA, BMDO, and DSWA.

What's the Success Metric Anyway?
Three companies with a lot of SBIR support won R&D 100 awards. What does that mean? What's the success metric anyway for SBIR? A continuing and controversial question. Advanced Fuel Research (East Hartford, CT), Applied Sciences (Cedarville, OH), and MER Corp (Tucson, AZ) all have technologically sweet stories after a decade of SBIR support. But since they are private companies who don't have to reveal their business results, they can claim whatever they want. In general they can escape any serious scrutiny. The government bureaus don't really care about the company's business success and have an incentive to accept any claim that is not clearly ridiculous. The politicians will accept the claims of home district companies if they can be seen to be associated with it and the politicians agree amongst themselves not to question the claims of companies from other districts. So the process avalanches. The early winners claim success and get more SBIR which leads to more R&D 100 awards.

For all of 1996 Coopers [& Lybrand] expect VC investment of $9B, up from 1995's record $6.6B. [WSJ, Oct17] Now, where are those companies crying on government's shoulder that there's no capital for their innovations? Are they the same ones who want a leave-me-alone government? They could study companies like 3C Semiconductors (Portland, OR) or Qsource (East Hartford, CT) or Theseus Logic (St Paul, MN) or CoreTek (Bedford, MA) on combining SBIR with private capital at a technology's infancy.

STTR Gets Another Year
Congress ran out of time before it could consider what to do with STTR. Re-election comes first. So it extended STTR for another year at 0.15%. Since 1) the money is small, 2) it needs no appropriation, and 3) there are no data to evaluate anyway, a one year extension was easy. Next year, however, the situation will not have changed. STTR will still be a minor league program that lets business avoid hiring a scientist, using instead a university researcher. Everything STTR does could as well be done with SBIR. If the university link really gets university research into the marketplace, it would be worth the money. But the universities have for years justified their research existence on new technology without compelling evidence that universities care whether the research ever shows up in the marketplace. It's all a pleasant fiction in no one's interest to challenge, not the SB, not the university, and not the politician. (STTR=Small Business Technology Transfer)

Intel Bans the Future
In anticipation of Proposition 211 which would open companies to lawsuits if any part of their crystal balls appear cloudy, Intel has ended forward looking statements. The law would be a bonanza for Monday morning quarterbacks in law offices. IT industry observer The Red Herring screams to abort 211 in the electoral womb. One immediate effect would be a mass resignation of VCs from boards of directors which could be sued for guessing wrong in uncertainty. TRH recommends that people who substitute bricks for disk drives should be nailed to the mast until they fry in the midday sun, but that existing criminal laws will do the trick. A general guide is that the lawyerest country in the world shouldn't be creating new opportunities to exploit ambiguity. That's the stuff politicians do to save dying industries. Return to Index

Lemme Out. Prop 211 would drive 47 percent of AEA public member companies to consider leaving California with a resulting decrease of 7 percent of high tech jobs, said an AEA survey. Easier said than done and such surveys are about as reliable as the poll numbers for a future election. The stats do say, though, that small companies are the ones scared by the prospects of opportunistic lawyers. After all, big employers like HP and Intel would hardly decamp since they could be sued anyway by shareholders in CA. Prop 211 would probably damage CA as a seedbed for high-tech startups. The long term answer is responsible behavior by companies and juries. (AEA=American Electronics Assn)

A BureauPrize to the listed DoD SBIR topic author who responded thus to a company's pre-release query for technical clarifications. Can, of course, only provide general responses. Also, don't know who ends up reviewing these or what they're looking for. All of the things you suggest appear reasonable. However, I'm aware of several organizations that claim to have technology to do each of them -- I'd be sure (if SBIR format allows) to specify "discriminators" that make your technology different. (This is the same advice I give to anyone who's submitting any sort of proposal.) Got the message?

Raytheon Expands R&D.
Start-ups looking for strategic partners got a boost in New England by the news [Boston Globe Sep 21] that Raytheon (DOD big contractor) is hiring 650 new R&D workers. SBIR companies should still be wary that such prime contractors often want only a sub-contract and have no heart for a long-term two-way relationship.

How Many Thirds in a Whole?
Andrew Madden remembers in 1983 probably a dozen disk drive companies going public in the space of 12 months, all of whom were predicting 30 percent market share [The Red Herring, Sept 96]. That's just the ones going public; think what all the proposers to government were promising. Actually, since that was before SBIR, government wasn't listening anyway. Now government pretends to listen, although it cannot reasonably judge the claims. Nevertheless, companies promising such market penetration for their new and amazing technologies should at least make the estimates sound credible. Unless it's a fig leaf situation where the agency just wants a cover for its funding a government technology. Invoking a smaller self-deception, many proposals I got said "assuming we get 5 percent of that market..."

A Single Match
"start wicked infernos with a single match rather than with 10 million gallons of kerosene" points right at the difference between private and public capital. Sequioa Capital, which started Yahoo! with $1.7M has the single match approach, says editor Anthony Perkins in his Red Herring Jun96. Government R&D, SBIR included, usually takes the million gallon approach which suits the R&D houses just fine. The top 19 SBIR winning firms show how little fire can be made from 300 million gallons when it is poured on sponges. Why? Government typically measures goodness by how much went into an enterprise, not how much came out, and certainly not by the ratio of the two. The usual government R&D manager is typically asked once a week "how much are you spending on Technology Y?" Partial apologies to Advanced Technology Materials (Danbury, CT) which has absorbed a lot of SBIR fuel after getting its first fire started with just two matches. The other 18 firms have merely provided a service to government which is OK under SBIR law, and if anyone is to be blamed for using 10 million gallons, it is government.

Ahem, Uh, New Reason
After some inquiry about its SBIR policies, Agency AB now asserts that its reason for killing negotiations with Company XY was a sudden disappearance of the funds for the contract [Full story earlier] That the funds that appeared suddenly for the negotiations were just as suddenly snatched away. Although all agencies have internal struggles for funds with constant shifting to the technology du jour, using it as a weapon against aggressive contractors extends the range of reasons for small business to seek more stable and predictable management. The public, even solicitous contractors, have a right to rely on governance by rational and published policy.

No, Yes, No, Drop Dead
Company XY won a Phase 1 SBIR from agency AB. It did well enough to be invited to propose Phase 2. AB then said "Sorry, Priorities". A few months later it sent a letter that opened with a big "Congratulations", you get Phase 2, but you must wait for AB's Appropriations Bill. It passed. AB wanted a Firm Fixed Price contract; XY caved. [FFP is a bad idea for young R&D.] AB wanted to keep the resulting prototype .[normal R&D practice but in conflict with the 1992 SBIR law]. XY caved. Days later AB's Contracting Officer (CO) called to say the procurement was canceled. Why such bad faith negotiations? Did AB negotiate with more companies than it meant to contract? [The CO hates useless work.] Did the technical expert lose another round in the internal budget war? [Agencies shouldn't use SBIR in fluid situations.] Who'll pay the company's opportunity cost? Hah! AB will mumble about no firm commitment and AB's need's shifting. Amen. It will not talk about commercial opportunity loss. [AB's top echelon is just beginning to see the merit of commercial acceptance.] Meanwhile the company can only appeal to the political system for equity. When AB moans about politics, where should it look for the problem? Stay tuned for results.

Science Fair in Cleveland
Workshops and facility tours (but no roller-coaster) at the Business and Industry Summit at NASA Lewis Research Center Sept 19. It's NASA's answer to the Tech Transfer Society National meeting in Cleveland in July. Government experts will staff 120 exhibits of what they do well - advance technology. NASA will do what it does well - pretend that new and useful technology will not be discovered by the free market without government help. It's an underlying premise for Tech Transfer all over government. NASA just does it with more gusto. The catch is that since government won't sell an exclusive license, no one can get rich with protected market share. Only those few willing to market a commodity (anything that competes only on price) will invest. BMDO's Tech Transfer uses a different premise - greed works. The inventor keeps the exclusive license while government introduces the owner to capital, and lets marriage chemistry take it from there. BMDO's experience is that small businesses, especially those getting BMDO SBIR, do it best. The annual report shows that SB with 2% of the R&D generates half the Tech Transfer.

Incentive or Disincentive?
One small business is the most competitive American firm to go against the sole qualified (foreign) supplier to be the national secure source for a military technology. DOD will probably supply investment from Title III (a nationalistic supplier subsidy) in two years. Meanwhile another SB wants to play and an enthusiastic DOD program manager wants to invest $4M SBIR in the second SB. The military department doesn't want the technology enough, though, to supply mainline R&D funds. If the second SB doesn't get money now it says it will have to abandon the quest. What should the PM do? Forgetting for now that the PM can't get such SBIR money anyway, the policy question is clear once more. What is SBIR for? Any worthwhile R&D project as long as it's a small business? If so, the mainline programs have no incentive to invest in small business. Did SBIR, then, help anyone. (Don't ask the short-term beneficiaries.)

No matter these record VC investment levels, small companies will continue to troop to government's door crying for money with a story that they cannot get investment capital for their innovations. Market-failure is the term economists use. SBIR advocates will use the long lines of applicants for the handout as a rationale for more handout. The politicians can safely humor the applicants because, by and large, most of the SBIR produces the same result that would have happened if the program had never been invented. Of all the second quarter VC investments reported in the Price-Waterhouse survey only one went to a BMDO SBIR company. DTX Corp (Lancaster, PA), which has a potful of SBIR in a decade to fund practically all its R&D, got $2.3M from Third Edison Venture Fund.

ATP Closes Sep 18
Government will again subsidize development of commercial technology while simultaneously proclaiming America the world's free market leader. (Whoever said election-year politics is consistent?) While the $25M is only an infinitesimal subsidy in a $6T economy, it lets our trading competitors off the hook for their massive industrial subsidies- a high price for an unneeded subsidy to self-funding enterprises. Despite Bill Clinton's taking a bold leadership step in abandoning a controversial subsidy for the poor, he fought a political battle with the free-market Republicans for this subsidy. Applications are due Sep 18. For info: 1-800-ATP-FUND; fax301-926-9524; or e-mail NIST.

The Emperor's Clothes?
The head of NIH (a Nobel laureate) hinted of a problem with the emperor's clothes; he said that NIH had to accept inferior grants to use up all the SBIR set-aside money. Which in principle crossed the line of indifference by funding at least one SBIR proposal that was of lower quality than the best mainline proposal rejected. SBIR avoids the question in most agencies by having no common standard for both. Well, that started the scramble in the Appropriations Committee (with normally no SBIR role) which offered a provision to keep SBIR within the indifference margin. Oh no. The SBIR advocates jumped in by calling SBIR recipients the advance guard of innovations and ideas (which implies that the mainline researchers, like Nobel laureates, don't have innovations and ideas). Apparently the SBA Office of Advocacy supplied the needed figleaf by saying that the methodology for rating SBIR grants inevitably leads to scores that are lower than other proposals. The issue will never be resolved by scientific method, leaving politics to decide how much SBIR is enough. [Facts from WSJ 6Aug96]. Return to Index

Congress Reauthorizing STTR
The House Small Business Committee (long may it survive) voted to reauthorize STTR until 2000 (like SBIR) and up the percentage to 0.25 percent (from 0.15 per cent). STTR expires this year unless reauthorized. Chances are excellent for reauthorization but uncertain for an increase. The advocates of a governmentless free market (Republicans from Orange County CA) can't even argue against STTR for deficit reduction since no separate money is appropriated. Expect no action until the September rush to adjourn to get re-elected.

helping small high-tech companies get from idea to market