Government stories of 2001

Army Smells Venture Publicity   (Dec 31) The Army suddenly wants to be a VC. After 17 years of using its SBIR money for incremental R&D, the Army apparently is dreaming of the public relations benefits of copying CIA's In-Q-Tel. Amy Cortese (New York Times, Dec 30) says the Army is thinking about $50M venture fund. Nothing rankles like another bureau's success. Such sudden government appetite for venture puts BMDO out of step since BMDO just renounced 15 years of venture funding in SBIR and started to copy the Army's plodding program.

New York Times says DOD got 12085 one-page hope sheets for quickie anti-terrorism ideas. Best ideas get an invite to tell them more. If you missed the chance, try SBIR by Jan 16. Maybe SBIR ought to consider the one-page approach to filtering useless proposals. In principle, as long as it allows anyone to submit a full proposal, it would help both companies and agencies to screen out the dross. BMDO had a somewhat different approach that discouraged useless proposals for a decade: advertising what kind of proposal it wanted and did not want and delivering brutal debriefings to the losers.

LARTA picked ten SoCal tech companies to highlight as making a mark on their industry. Three are SBIR companies.

Simpex (Brea) developed the first prototype in 2000 for the only noninvasive micro detection technology that can measure connectivity within nano-scale dimensions of semiconductors. And for those rare SBIR agencies who believe that co-investment is a firm indicator that somebody cares more than happy words, it got two matching grants from California's TIP program. Simpex has had at least five Phase 2s from DOD.

Chemat (Northridge) started making money with half the revenue from customer sales of sol-gel products to add to the almost one hundred contracts for government agencies and industry clients. Chemat has had at least seven Phase 2s from DOD and Energy for materials.

Syagen (Tustin) developed a chemical and explosive detection technology that analyzes an air sample in a few seconds for the target molecules. It has had at least two Phase 2s from DOD. [story by Wendy Hall]
Venture Forum 2002 Applications. Larta is now accepting applications for the 2002 Southern California Technology Venture Forum (SCTVF) through Feb 1. the longest running and most prominent Forum of its kind in California, having jumpstarted over $400 million in investment financing for companies. If you are selected to present, you will be assigned a seasoned mentor team to help you refine your presentation and business plan and prepare you for your presentation at SCTVF 2002 on April 18. [larta Dec 21]   "The Book of Life". Scientists as well as financial analysts caution that gene therapies may never come to fruition. If they do, Dr. Muin Khoury, director of the Office of Genetics and Disease Prevention at the Centers for Disease Control, believes they will be useful only for a handful of rare diseases. A Motley Fool financial columnist tells millions of readers, "There's no reason why the average investor should be invested in biotechnology companies. None." [The Nation, by larta Dce 21]

Another SBIR News Service. The free SBIR/STTR Alerting Service publishes bi-weekly notification of SBIR and STTR solicitation announcements, news and information, and Internet resources relevant to the SBIR/STTR programs. Provided by Pacific Northwest National Laboratory (PNNL).to sign up.


Southern Illinois University at Carbondale has broken ground on the $40 million, 45-acre Southern Illinois University Research Park. Plans call for the park to include 12 buildings totalling nearly 236,000 sq. ft. When full, the park should house approximately 75 companies with 800-1,200 tech-skilled employees. Financing for the initial phase has come from an Illinois FIRST grant of $500,000, a $300,000 Congressional earmark, and approximately $700,000 in other federal funds. Verizon also has invested $800,000 in an on-site fiber optic switching center. [SSTI, Dec 14] two long-stalled attempts to launch statewide funds to invest in fledgling tech companies--one proposed by Mayor Daley nearly three years ago, the other hatched last year by University of Illinois officials--each hit walls in the last six months.W hy? Simply put, Illinois tech promoters can't get their act together. The state is rife with turf battles among a relative handful of bureaucrats and politically connected business people with access to money and influence. [Barbara Rose, Chicago Tribune, Nov 29]

Pork in the Woods. A $200K Congressional earmark is making the concept of a Virginia Highlands Small Business Incubator a reality, as it will pay for engineering studies, site preparation and architectual drawings. The tech incubator will eventually be located in a six-acre Stonewall Research and Technology Park adjacent to the Southwest Virginia Higher Education Center in the town of Abingdon, Va. [SSTI, Dec 7] Since this is Ollie North country, will the arch-conservatives rail against home cooking of federal government handouts?

Max Yoder retiring soon. ONR may not miss Max since it is a bureau, but proposers and scientists who hoped that government would see sensibly what they had to offer will suffer. Max was one of the rarities at ONR - a genius without a PhD. When I judged whether an SBIR proposal had commercial potential, I ignored the opinion of almost every government technical reviewer except a few like Max who somehow had his finger on the pulse of the high tech market in electronic materials even though he was barred by his position from profiting from the information.

VC and Angel Forum for Lovers. The state that advertsies itself as for lovers and against an auto tax will have a one-day forum of VCs and angels March 14, For info

Venturing States in Dreamland. Lots of states think that they can help their economies (jobs, jobs, jobs, for which the politicians can claim credit) by directly funding start-up companies. But they are having no more luck than the private VC funds in keeping the money flowing this year, says ROBERT GAVIN of THE WALL STREET JOURNAL, Nearly every state has seen early-stage venture investments fall substantially in the first nine months of this year, according to the PricewaterhouseCoopers Money Tree Survey. Nationally, these types of investments fell $15.7 billion, or 78%, from last year. State legislatures have also had a tendency to abandon investment schemes that require regular appropriations with no obvious short-range tax income return. Meanwhile, Gavin also reports that the Corporation for Enterprise Development, a Washington, D.C., nonprofit economic-development group, attributes the success of the best state economy performance to long term thinking with emphasis on investing in education, environmental protection and infrastructure. The battle between the lobbyists for state investment (political euphemism for a handout) will rage between the direct subsidy approach (give money to companies and incubators) and making the state a a healthy place for business.

NSF SBIR in Homeland Security. NSF invites SBIR proposals for its January solicitation for "out-of-the-box" regarding both perceived potential terrorist threats and technologies to defend against them. NOT proposals for incremental development of available technologies; send those to the Air Force. But they must be civil defense, not military, they must make a case for a credible threat as well as for a potential commercial application, and they must be about the nominal topic subjects - BT and EL. For complete info. No free lancing into other science areas; NSF isn't that flexible even for a national emergency.


Army Rewards Experience
(Nov 26) Physical Optics with 11 awards, Foster-Miller with nine awards, and Cybernet Systems with six awards top the Army Phase 1 SBIR list.Companies that have already had zillions of SBIRs from just DOD: Foster-Miller 549, Physical Optics 312, and Cybernet 92. Out of 2055 proposals, 312 won, a 15% acceptance rate. And from just the proposal titles it looks like Army has continued its self-service looking for predictable results with little regard to long range tech impact. The usual suspects doing the usual software and analysis projects. Modeling Integrated Helmets for Aviation; Exhaust Impingement Effects Predictive Capability for Future Combat Systems (FCS) and the 21st Century Truck; Computational ElectroMagnetics Analysis Assistant; Web-based Techniques for Remote Scientific Visualization; Next Generation Software for Efficient Remote Parallel Visualization of Large-Scale Time-Dependent CFD Data.
Ycch! They are almost all solutions to existing problems that could be done by almost any competent entity: large or small, aerospace prime, university, or small hobby shop. The Army does NOT care about agility in getting new technology into a market place because these are almost all things that the Army will make for itself or merely acquire the knowledge. The companies will be joyed to do the work and collect the pay until the Army money runs out and then the work will end. Economic impact on the US economy? Nil. The money would have been spent for R&D jobs anyway and there will be no momentum of new products or technology that will energize a new industry that will create new and better employment in a decade.

The Education Myth. Every state development agency knows that one route to a high-tech community is a more educated work force. Like most conventional wisdom, it works for political sound bites. But it takes more than a husky forward to make a basketball team. Now John Bound (U Mich) says that education indeed has less effect than the universities would have the governor believe. Bounds's study suggests that kids with new degrees have 49 other states to choose from for employment and that transport by jet plane moves workers a lot faster than a Conestoga wagon would.[report in Business Week, Nov 26] Just as having the only fax machine is worthless, being the only college grad in a community has its limitations. So, states and regions with Silicon Valley envy will have to think multi-tasking.


Just a Little Innovation, Please, We're NASA
(Nov 23) Despite the efforts by the House Science Committee Republicans to get provable commercialization into non-Defense SBIR, NASA has awarded yet another Phase 2 award crowd of mission service contracts. We presume that a pony of some innovation must be in that pile somewhere. Three triple winners in a crowd of old NASA friends: Creare, Eltron Research, Physical Optics, TDA Research, and a couple of of double winners among the 126 contracts, That will be about $90M of good steady government incremental advances for NASA's mission. Both NASA and the winners will no doubt exult in the spinoff possibilities but they will dodge any economic measure of NASA's investments.
Want to see how to win awards year after year? Study such companies as:
Barron Associates, Reconfigurable Guidance for Reusable Launch Vehicles
Energy Science Laboratories, Lightweight Passive Vaporizing Heat Sink
Intelligent Automation, Time Modulated Ultra-wideband Phased Array and SAR Radar
L'Garde, Inflatable Structure for Tensioned Membrane Planar Antennas
Lynntech Hydrogen-Air Fuel Cell for High Altitude Aircraft Use
Scientific Systems, Aircraft Prognostics and Health Management, and Adaptive Reconfigurable Control

Government Static, Industry Rising. The Republican economic conservatives (not the social radicals) must be winning. The share of US R&D funded by industry has been steadily rising for four decades from 33% in 1960 to 68% in 2000. In constant (uninflated) 2000 dollars the government amount has been around $50B.O fthat 68%, 13 points came in the 1990s. [source: NSF]

Your Tax Money at Work. Despite 100,000 employees, the Internal Revenue Service is in a fog about how much abusive tax shelters cost the Treasury. Replying to a critical report by government auditors, IRS official Larry R. Langdon wrote that HNC Software which detects fraud by using neural network technology, has been hired by the agency to "help us identify corporations using abusive tax shelters and estimate the size of the compliance problem." Saying that Langdon's response was actually released by mistake, an IRS flack refuses to disclose the contract's total price. [Janet Novack, Forbes, Nov 26]


If a Little Bit is Good, A Little Less is Better? The Federal and State Technology Partnership (FAST) made its first round of 30 awards, totalling $3.45M, six weeks ago. This program was created by Congress in very large part because of the need and interest demonstrated by the Science & Technology Council of the States. The FY 2002 appropriation has been reduced to $3M. [SSTI, Nov 16] NIST Still in Business. ATP will have $60M for new awards in FY 2002 and $184M for existing projects and administration. Overall, NIST gets $674 million, $77 million more than FY 2001. The Manufacturing Extension Partnership received more than $106M to remain available until expended. NIST did not escape Congressional earmarks. (At least $40M) More information is available in the conference report for the Commerce-Justice-State appropriation:

California Bound and Need Money?. Los Angeles has a new edition of its guide for tapping the federal treasury for technology money. LARTA offers a short version free and the full version for a fee of its 2002 Federal Technology Funding Guide.

rather than correct their anti-innovation policies, governments want to pick and back technological winners. Their inability to do so gave us nuclear plants that bankrupted their owners, supersonic jets that cannot recover their capital costs, the phenomenally expensive and unusable BSB satellite television system that Sky had to absorb, and a dome to display the wonders of the future. [Irwin Stelzer, The Sunday Times, Nov 11]

A Company Plug for SBIR, SBIR gives our partners an edge. Tap into the trend. DSM actively participates in SBIR. ... DSM is an important player, receiving $3.1M in initial SBIR/STTR seed funding to develop disruptive technology that can address enormous commercial markets including photonics and MEMS assembly processes. Our partnerships are leading us the rest of the way. The SBIR benefit for current and potential DSM customers:
SBIR removes some of the technical risk. SBIR selections are based on a rigorous technical review by experts in the field.
SBIR removes some of the commercial risk. For agencies such as BMDO, an important aspect of the selection criteria is strong commercial potential. In the past three years, DSM has received 6 Phase I and one Phase II SBIR contracts from BMDO alone.
Your customers want innovation but your IR&D account doesn't? The solution is simple: Co-invest. If you co-invest on SBIRs with DSM, you can double your research dollar while reducing the risk.
DSM is Dynamic Structures and Materials (Franklin, TN).


Maine Voters passed a $5M R&D bond issue for biomedical and marine research and development by Maine-based nonprofit and state research institutions. By a landslide, 53% According to the Bangor Daily News, a 1998 $20M R&D bond has already generated more than $100M in spinoff benefits, including new jobs, federal research grants and additional industrial R&D contracts. [facts from SSTI Weekly Digest, Nov 9] Do you believe the benefit accounting? Or has the government made the most friendly assumptions about what actually happened and what caused it. For example, did they subtract the jobs and economic activity caused just by spending the government money? By extrapolation, Maine should borrow billions to jack up the state's economics.

Explosive Ideas Wanted. Defense Threat Reduction Agency wants commercial technology solutions for advanced energetics and novel explosives. More bang, a lot more bang, than conventional high explosives. POC: Kelly Dowd, 6801 Telegraph Road, Alexandria, VA 22310- 3398 and e-mail: no later than November 231. More information for solicitation number TDS029971764 is available in the Commerce Business Daily issue posted in CBDNet on November 7, 2001: No big news that DOD wants more bang. News would be that anyone actually has a useful idea in this mature industry which goes back to the Middle Ages. Not the oldest profession by far but certainly mature. No, they won't believe you have revised the laws of physics. DOD has been spending regular R&D money on propellants and explosives for a long time and has probably heard all the off-the-wall ideas a dozen times.

New Guide to Federal Tech Funding Available. larta has issued its 2002 Federal Technology Funding Guide, a survey of federal funding sources for technology firms. The sixth edition of the guide provides information on more than 90 regularly scheduled programs, hundreds of links to resources on the Web, and a special section funding for technologies to fight terrorism. An index identifies program by technology area or funding emphasis. larta is one of three regional technology alliances established and funded by the Division of Science, Technology and Innovation in the California Technology, Trade and Commerce Agency. The full guide is available for $39 from larta; an abbreviated, downloaded version is available at

When in Doubt, Re-Organize. The government has a standard answer for every program that seems bogged down - reorganize. Let the clock re-start for the critics, goes the theory, although the critics don't buy it. BMDO is now grabbing AGAIN for the re-organize lever for some mix of its three basic options: do it all themselves, parcel the job out to the military services, contract the job out to the big aerospace primes Boeing, Raytheon, Lockheed-Martin, General Dynamics, and Northrop Grumman. The debate is political and endless. Everyone involved lusts for the money that goes with a role. The military services each promise the "perfect" defense and everyone has friends in Congress.

Significant efforts in communication and integration have resulted in the annual solicitations that reflect the Agency's technology taxonomy., says NASA's SBIR/STTR Program Report about its program management. Bureaus talk that way. I think that line says that NASA heard a lot of criticism from within about its topics and fixed them.

Is 30% Good or Bad? Survey results show that over 30% of NASA phase II awards have produced technology that has been incorporated into revenue generating commercial products and services in non-government markets. More than 450 associated commercial products and services in numerous industrial sectors are represented. This demonstrates the pervasive effect of NASA’s SBIR program on the national economy. [NASA SBIR Commercial Metrics Report] What's notable about such stats is their avoidance of economic concepts like Return on Investment. Instead they do what political programs typically do, measure participation.

Pentagon Seeks Tinkerers Against Terrorism.
(Nov 1) DOD is looking for a few great ideas against terror. That is combating terrorism, defeating difficult targets, conducting protracted operations in remote areas, and developing countermeasures to weapons of mass destruction. It wants stuff that can be fielded in 12-18 months. "We've got a new kind of problem here, so if anyone's got good ideas, that can be helpful," notes James Kurtz, a researcher at the Institute for Defense Analyses who spent 32 years in the Army. "They're looking for the guy in the basement of the high school science building who's got a new idea. Nobody has a lock on all good ideas." [Richard Leiby, Washington Post, Oct 31]The announcement calls for anti-terrorist "concepts" in 38 categories, including "countermeasures to weapons of mass destruction." which means almost anything, say, air samplers, sensors to detect small nuclear devices Submit a one-page grabber by Dec 23. If that looks good enough, a 12 pager comes next, and then a full fundable proposal. If you want to submit,you must first register for the BAA game at What are your chances? Not much unless you have something they haven't seen before or a Member of Congress as a champion. Such projects typically recycle the national attic of pet rocks (anti-gravity and perpetual motion). Maybe another business tax cut would prevent terror attacks.

Small Company as Pawn. Clyde started a one-man technology company and won a Phase 2 SBIR. All was going normally until the DCAA assigned a new auditor who was having a conflict with his own management. Suddenly all of Clyde's accounting was fatally defective and for two years Clyde's attention shifted from R&D to defense of his accounting. Clyde could no longer focus on the prospect of $1.2M for follow-on development from his state and a private investor. A year after DCAA assigned Mr X as auditor, X told Clyde that he had been shifted in his job after charging his boss with race discrimination. Soon however, the agency also shifted the boss to be X's boss again. X now had to prove that he was a tough auditor. Then suddenly X disappeared to be replaced by Y who had a totally different approach to auditing. Numbers aren't just numbers. Details and rules that were never raised before surfaced to interpret Clyde's existing accounting system as invalid. After countless meetings (100 hours of joint work alone) and after Clyde revised nearly all documentation, Y disappeared for several months and criminal investigators knocked on Clyde's door wanting all documents for the last five years. Then yet more documents. Meanwhile the boss defending the race discrimination charge claimed that the investigation of Clyde proved that X was incompetent. When Clyde suggested that neither X nor Y should be auditing because they are all entangled with the discrimination case, the government attorney threatened yet more investigation. Case still pending. Kafka, where are you?

Corporate R&D Alive and Well. The special pleaders that government must do more for US R&D rings hollow in the face of growing corporate R&D. Last year public US corporations almost doubled the growth rate of their investment in R&D in 2000, up 9.3% to an estimated $163B. Government R&D for government purposes also partially feeds the tech growth rate with some unintentional spin-off. As John Pike used to say about Star Wars spending "You can't spend $4B a year and not get some spinoff."

STTR Law Signed
(Oct 19) The new law doubles the percentage set aside to 0.3%, ups Phase II amounts to $750K, and lets agencies stretch out Phase 2s beyond the nominal two years. It also pumps a trickle of money into the have not states to pretend that they can compete with Silicon Valley. See HR 1860 on Thomas Legislative Locator. Actually the new law gives each agency no new power it didn't already have. The total money is peanuts and the agencies are still free to ignore any serious commercialization. The law is just a political sop to the small business community which thinks it is getting something. In fact, it is getting nothing except the $5M that goes to the have-not states, and even that is in danger of not being appropriated. Ain't politics a hoot?

Massachusetts mirrors USA world position - strong and growing but losing ground to competitors. Bob Kispert director of Mass S&T reported that Massachusetts, while continuing to be in the top 10 states for federal R&D support received, is losing market share to other states as they become more technologically competitive. The report credits some of this loss to the concerted efforts and "effective" tech-based economic development programs of some rising states. Could all those Route 128 wannabes actually be gaining on Silicon Valley? Just as the Germans and Japanese gained relative ground on USA in the 60s and 70s. Everyone was winning but the USA no longer owned everything. Which led to a declinist attitude, especially against Japan in the early 80s. Kispert's report "Maintaining the Innovation Edge" calls the Massachusetts science and technology community to create a comprehensive S&T strategy that reinforces the state's economic development goals.

Eyewash Coming. NASA will publish a web/hardcopy based magazine Venture Briefs to promote NASA's commercial success with SBIR. Good luck with making lemonade out of that lemon. NASA, which pours most of its SBIR money into mission activities, would not have a compelling commercial story. It is likely to continue the fiction that a few success stories proves the investment mettle of its managers. Don't look for rational economic analyses like that risked by BMDO. Publication target date is Dec 1 and companies can submit material to

before DARPA officials even decide what to fund, "one of the questions senior management asks is, 'Is somebody else able to do this problem?' If they are, let them do it," says Alexander. And if not, DARPA primes the pump, providing enough time and money for the technology to take root in the commercial world. "With the right investment at the right time, I can steer industry toward an area that will be useful. I nudge them." [David Talbot, DARPA's Disruptive Technologies, MIT Technology Review, Oct01] Such was BMDO's SBIR philosophy before the Dark Forces grabbed power. The difference between DARPA and BMDO SBIR was one of scale (multi-millions v.$1M) and a narrower focus at BMDO for anti-missile technologies. But both sought disruptive technologies that would make life both better and worse for future BMDO Directors (an job where no man ever lasts more than a few years): better because it brought a few technologies that would never have been born otherwise, and worse because it would cause BMDO to shift its plans. That was also the usual complaint by the military establishment about DARPA. In a post-script to the DARPA piece, Michael Dertouzas, late founder of MIT's Computer Science Lab, noted that DARPA has been responsible for about one-half of the major innovations that have made information technology what it is today. While that may overstate the government contribution to info-tech, it should be warning to the conventionalists at BMDO and the military services that if they want to stay on top of the heap where all that info-tech has put them, they have got to open their minds to investing in odd ideas by odd-talking people. Out of $8B in anti-missile money, BMDO can certainly spare the $100M to be devoted to guarding the future even if one gaggle of technocrats with too little other technology money to justify their jobs has to be shifted somewhere else in BMDO.

Science Directory. Looking for a U.S. government lab that studies mad cow disease, projections of how global warming might affect the ranges of forest trees, or information on alternative fuel vehicles· Drop by, a select list of federal government Web sites offering all kinds of scientific and technical information. This still-growing guide, compiled by the National Technical Information Service, spans subjects from aeronautics to transportation and allows you to search by agency, topic, type of resource, and key word. You can also browse a roster of more than 30 Web portals that have gathered information on subjects such as invasive species, biotechnology, food safety, and neutron scattering. The site also offers access to millions of government reports and studies. [Science, Sep 21]

The House passed a bill to extend and double STTR to 0.3% of the R&D extra-mural budgets of the big agencies. The politicians sponsoring the bill made the usual blather which will be ignored by the federal agencies who will do pretty much whatever they want in implementation as long as they follow the letter on award sizes and solicitations. The happy words about economic growth will take a distant second to the agencies' serving their own needs. Passage was without debate and seemed related to the sudden willingness to pour out billions to large companies, especially airlines, hurt by the Sept 11 terrors.


Opportunity To Be Wasted The entrepreneurial economy, already hurting badly before the Sept. 11 terrorist attacks, has taken a sharp turn for the worse. Entrepreneurs say their customers have entered a state of suspended animation, stunned by the terrorist attacks and their aftermath. Partnering deals are in limbo. But early-stage companies continue to burn through their precious cash, and some of the venture capitalists who back them wish for a "timeout" that they know is just wishful thinking. ... Venture capitalists talk of funding new technologies, e.g. those that provide security or video-conferencing. Even some start-ups grazed by the tragedy are still candidates for future funding. ... Funded or not, most start-ups are keeping expenses to an absolute minimum. Some call it "hibernating" and just trying to hang on until a warmer climate loosens up funding and purchasing by potential customers. Of course, this raises the question of whether would-be entrepreneurs will themselves hide from starting companies in a world economy that has gone from fragile to something worse. That would crimp innovation in America, surely. Paradoxically, though, the payroll slashing could bring new entrepreneurs to the scene. [Bernard Wysocki Jr, Wall Street Journal, Sep 24] The Silicon Valley Fastest 50 might have been fast, but they were slow to make money for their investors.So slow, in fact, they went backward. Stocks of all but one plunged over the past 12 months -- a majority of them losing 80 percent of their value or more. Individual investors suffered huge losses -- more than they would have if they'd invested in the average Nasdaq company, down 69%. For the first time ever, most venture capitalists lost big money, too. Venture capitalists invest early in a company's life, and traditionally have made the most money from a company as its value appreciates. These VCs invest when the company is tiny, and so can buy up a big stake of ownership at a low price. When they sell their company shares at a public offering, venture capitalists can make a killing. But the money lost over the last year was the result of a new attitude. About three years ago, euphoria surrounding the Internet began changing the rules of investing. VCs and other investors began putting money in companies -- even in non-Internet companies -- that weren't even close to profits -- hoping to strike gold on the future of the so-called New Economy. In hindsight, the New Economy was ephemeral, the old rules have returned with vengeance -- and VCs are now paying for their past sins. [MATT MARSHALL, San Jose Mercury News, Sep 24]
The government has an opportunity here to provide seed capital for new technology. But the signs give no confidence that such will happen. The distribution of funds like SBIR are in the hands of the technocrats who have no interest in seeding technologies or companies for growth of the economy. They care about their particular programs and they never saw a budget dollar they didn't lust for to do more of what they are doing already. The law of diminishing returns and the idea of high-risk high-payoff do not invade their consciousness. Even the most entrepreneur-friendly SBIR program is losing an internal fight by the technocrats to grab all the SBIR money and apply it to "relevant" BMDO program. That's code for grabbing the power and promotion that comes with a larger budget. The bureaucrat's brass ring.

Round Up the Usual Suspects, and give them SBIRs. NASA SBIR Phase 1s hired multiple winners, especially companies that have been multiple winners for years and years, to do things like New Technique to Identify the Onset of Combustion Instability, Network Implementations for Real Time Communication and Data Transfer, Development of Boundary Vorticity Dynamics Based Closed Loop Flow Control, Constraint-based Workflow Management for Life-Cycle Analysis and Design, Object-Oriented, Network-Based, Health Management System, Hybrid Model Fusion for Gas Turbine Engine Diagnostics and Prognostics, Digital Flow Diagnostics System for Complex Flows, Virtual Collaborative Training and Operations Simulation System. Old names with what NASA claims are innovations: Creare 7, Foster-Miller 3, Intelligent Automation 5, Lynntech 6, MER 5, Orbital Technologies 6, Physical Optics 4, Physical Sciences 3, Southwest Sciences 4, SRS Technologies 3. Of course, these are Phase 1s, not serious money. But they do open the door to doubling the mediocrity by giving incremental R&D the real money - Phase 2 money. If you want NASA money, be conventional and stress reliability and predictability.

If you proposed to DOD in the summer round of SBIR, be prepared for a surprise - war changes everything. The military services will suddenly have new wants by the time the funding decisions are made and they may well see SBIR as a way to shift their R&D programs to satisfy immediate needs. Although DOD will find hunting terrorists another war for which they are ill prepared, America does well at ad hoc war provided you don't look too closely into the victory claims. This war, for example, could well mimic the Vietnam experience of counting bodies as a measure of success. We do have a businessman as SECDEF and the White House will be pressuring him for results by beating him over the head with Jack Welch's books.


SC fund on the prowl for investments. A newly formed South Carolina venture capital group is scouting the Charlotte area for investment deals. Leaders of the Trelys Venture Partners plan to visit Charlotte every few weeks to meet with venture capitalists and entrepreneurs... Trelys is trying to raise a $25 million fund to invest in high-growth technology companies. Managing partner Larry Wilson says the fund will invest in companies across the Carolinas and in Atlanta. This fall, he expects to begin investing $1 million to $2.5 million in deals with other venture capital groups. ... Blue Cross and Blue Shield of South Carolina has invested $2M. ... The Trelys partners plan to focus on South Carolina,which has seen three venture capital deals, totaling $90 million, signed through the end of the second quarter. [J.C. Zoghby, Business Journal of Charlotte, Sep 10] VC no longer easy money in NC. Venture capital investment dropped sharply across the state in the second quarter, falling to $103M from a record $745 million during the same period last year. North Carolina is following a national trend toward far less venture capital investment. ... That makes things tougher for entrepreneurs, who had grown accustomed to the easy-money days of the late 1990s, experts say. ... Charlotte still trails the Research Triangle in attracting venture capital investment. ... In the past two years, the number of local firms known to have collected significant cash from institutional VC investors can be counted on two hands: Amplistar Inc., Pilot Therapeutics, TransTech Pharma, Accordant,, Healant and the now-defunct eDesignerSource. [J.C. Zoghby, The Business Journal of the Greater Triad Area, Sep 10]


go to top

IS THE SCIENTIFIC BUREAUCRACY THE QUINTESSENTIAL SPECIAL-INTEREST GROUP? ... "With the possible exception of veterans, farmers, and college students, there is no group that squeals more loudly over a reduction of federal subsidies than scientists. They are the quintessential special interest group, and in effect, they make the oil industry look like a piker." ... Isn't American science struggling to survive on meager funds, the result of post--cold war budget cuts inspired, in part, by the American people's alleged indifference, even hostility, toward science? Poppycock, Greenberg replies in a book that is better documented than most National Academy of Sciences reports yet reads as briskly as a Dashiell Hammett detective story. (I devoured it until 4 A.M.) ... "There is too much hype," he quotes Maxine Singer, one of the few female members of the National Academy of Sciences, as saying. "Every gene that is discovered will lead to a cure for cancer. Maybe, but not for a long time. Even the Superconducting Super Collider was said to have important implications for improving human health." For anyone naive about the politics of science, Science, Money, and Politics is the perfect curative. [Keay Davidson is a science writer for the San Francisco Chronicle and author of Carl Sagan: A Life (John Wiley, 1999), Scientific American, Sep 01]

The attacks on New York and Washington are acts of war if perpetrated by or with the tolerance of a foreign government. The apparently total surprise will produce hand-wringing followed by attempts to explore (no stone unturned) every sort of intelligence technology that could prevent another such surprise. Money is not likely to be an object. Organizations with quick response modes, like DARPA, should be rich sources of R&D for new high-tech ideas. Dust off your sensor technology. And if I could hear the explosion hundreds of yards away, the BMDO SBIR office just up the hill from the crash side of the building must have felt a mighty thump.

If you are in a position to put your company in whatever state you choose, you might want to consult the Small Business Survival Index with which the Small Business Survival Committee, a Washington-based advocacy group with a definite bent toward less taxes and less government, rates states. Nevada was best and DC worst. [scouting thanks to Jeff Bond, a government guy who finds anti-government and other sites about high-tech small business]

Air Force Dual Use S&T Program Conference. AF DUS&Twants to cost-share research projects with industry for the development of a technology that has both military utility and sufficient commercial potential to support a viable industrial base. A main objective of the AF DUS&T Program is to obtain for defense procurements the economies of scale, accelerated product improvements, and increased sustainability inherent in the commercial marketplace. Since 1997, the AF DUS&T Program has started 121 projects for $476M outside the FAR as "investment partnerships" A one-day workshop on AF DUS&T Program Sept. 27 at the Ohio Aerospace Institute (OAI) in Cleveland. Contact, Register at . More information on the overall AF DUS&T at

With the completion of the 2001 edition of the Maryland Innovation and Technology Index, the Maryland Technology Development Corporation (TEDCO) is able to show state policymakers and tech community leaders graphically and statistically the state’s progress since the first Index was prepared two years ago. Innovation indices or S&T report cards, as some states and communities refer to them, help identify areas of strength, weakness or underperformance. The first assessment undertaken, for Maryland in 1999, provides a benchmark for measuring future growth or progress. Subsequent indices can help tech-based economic development practitioners refine their efforts. Comparing Maryland on 66 items to five other states Massachusetts, New Jersey, North Carolina, Pennsylvania and Virginia TEDCO concludes from the 2001 Index that the report paints a picture of opportunities missed. Maryland is at best holding its own among competitor states, or worse, losing ground. [SSTI, Aug 24]

Works in OK, Let's Try It In IA. GOP legislative leaders told a meeting of the Iowa Taxpayers Association on Wednesday they're moving to create a new venture-capital program so the state can attract new small businesses and expand existing ones. ... the attorney general that a venture-capital program can be devised that won't run afoul of the state's constitutional restrictions on lending. That clears the way for Iowans to go to work on a serious venture-capital program like the one Oklahoma pioneered so successfully ... Oklahoma provides what are called "contingent tax credits" to those who invest in certain start-up businesses. The state agrees to provide an income-tax credit worth the amount of money lost in such an effort. So, if investors lose money on a deal, the state lets them subtract that amount from their state income-tax bills. By making such a guarantee, the state takes away much of the risk ... Venture-capital experts say Oklahoma's state government has never lost any tax revenues through the program. [DAVID YEPSEN, Des Moines Register, Aug 16]

Transparency. Let's have a round of applause for CalPers, the giant state pension fund, for transparency. Beth Healy of the Boston Globe (8/17/2001) reports Money managers aghast that pension investor shows returns, rankings. It's a report card that has rocked the secretive venture capital world, and one that even the `A' students didn't care to see displayed on the refrigerator. Calpers, the giant California pension fund that sets trends for many large investors, has posted on its Web site the performance of every venture or buyout fund in which it's invested for the past decade. Firms typically guard these numbers carefully, but the Calpers chart even says which funds are meeting expectations, and which are disappointments. ... The industry buzz around the report stems from the secrecy with which venture firms and buyout artists guard the specifics of their returns. Virtually every firm claims ''top quartile'' performance, and the numbers they give out are suspect, venture analysts say. Steve Lisson of Austin, Texas, on his controversial Web site,, tracks venture returns by doing his own calculations on venture portfolios. He is the only independent source on such numbers and has drawn fire from some venture capitalists for breaking the code of silence. ... over the long term, Calpers has been doing something right. As of March 31, its average annual return for 10 years of private equity investing was 17.5%. The Wilshire 2500 Index, a broad stock market benchmark, was up 13.9% in that period. Would that the federal government would do the same with alleged investment programs like SBIR.

Little Guys Should Get a Share of Contracts. The political spokesman for a new government set-aside program said that small contractors were being systematically denied contracts because the bureaucrats would rather deal with known entities with proven track records - large contractors. The spokesman said too little is done to include those that serve with vigor locally but are not as large as the traditional partners of federal government. Sound like a familiar spiel? It's not SBIR; it's the faith-based charities appeal by Bush's front-man John DiIulio [Wall Street Journal, Aug 17] Maybe then the Republican administration will be advocating SBIR. Nah! Why would you expect politicians to be consistent?

Michigan Makes Pre-Emptive Strike for Fuel Cell Commercialization, Manufacturing. What are you doing to protect your state or local economy from technological advances that will completely overturn an industry 10, 20, 30 years from now? With the prospect of someday losing 27,000 high-paying tech jobs at 15 automotive engine and powertrain plants, Michigan has unveiled a plan to position the state as a leader when automotive applications of fuel cell technology make the internal combustion engine obsolete. ... the strategic plan and market study call for the state and automotive industry to jointly:
Form a club Create a Michigan Advanced Automotive Powertrain Technology Alliance;
Form another club Investigate the feasibility of creating a power electronics Center of Excellence;
Form another club. Establish a Michigan Hydrogen Infrastructure Working Group to include the investigation of necessary changes and lead time requirements for service and repair of infrastructure related to fuel cell and alternative technology vehicles;
Usurp the usurper. Promote the demonstration and testing of prototype fuel cell vehicles and support the commercialization of fuel cells for vehicle and stationary power generation applications; and,
Study the problem Conduct an economic study to determine the most appropriate financial incentives for the development and commercialization of fuel cell and other advanced technology vehicles.
[ SSTI Weekly, Aug 16,01]

RTI plan gets second wind. Leaders of the Regional Technology Initiative -- who promised but never delivered a March plan to bring Cincinnati to the forefront of the New Economy -- are trying again after months of racial strife, political fallout and a sagging economy. Under the plan released Aug. 9, Jack Cassidy, president and COO of Cincinnati Bell, will spend the next few weeks assembling a 15-member leadership council that will direct a "Technology Growth Accelerator." Headquartered at the Greater Cincinnati Chamber of Commerce, the accelerator will be a combination of people and resources to support high-tech initiatives, entrepreneurs and the big businesses that would work with them. [Rachel Melcer, Cincinnati Business Courier, Aug 13]


Now Hear This. The Navy says that (for 1999) 45% of the firms winning an SBIR were newbies to Navy SBIR and 19% were new to the whole government. That does NOT mean that you have a 45% chance is you haven't won before. First, if you have a mediocre proposal, you have no chance. Second, that figure does not say how many awards were made to firms winning more than one award. In the extreme if the Navy made 99 awards to one firm and one to a newbie, it would report that 50% of firms were new firms. The Navy has a commercialization assistance plan. Most likely if you win a Navy SBIR you would be tracked to contribute your stuff to some Navy development program, since the Navy clearly says its SBIR focus is the fleet. But, still, in the hope ...., it has a three track commercialization help program. Observers may note that Navy propaganda on the subject shout about a few big stories (to which the Navy may have made a substantial contribution) but nothing on any economic analysis. That lack usually means that the story is poor and the big successes may well have happened anyway. Without any decent analysis, outsiders are just guessing.

A Haven for the Uncompetitive. Don't want to compete for SBIRs on the basis of commercialization? Blame the economy for the lack of interested investors and then bet that your competition who really wants to commercialize cannot get them either and claim that your sweet technology is as good as theirs. Paul Krugman explains, The driving force behind the current slowdown is a plunge in business investment. It now seems clear that over the last few years businesses spent too much on equipment and software, and that they will be cautious about further spending until their excess capacity has been worked off. And the Fed cannot do much to change their minds, since equipment spending is not particularly sensitive to interest rates. [New York Times, Aug 14]

Kortum and Lerner calculate that a dollar of VC money produces 3-5 times as many patents as a dollar of corporate R&D. About which VC Geoffrey Yang says that cost of capital has recently gone from zero to infinity for ground-breaking ideas. Not to worry, the government SBIR will let you keep the patent and give you a little free capital. Actually, under some circumstances, it will give you a lot of free capital. For conventional ideas with predictable results, the government may give you endless contracts to keep grinding at one of their problems. It's not exactly capital you can use for anything else, but, hey, it's a living.

Try Cincinnati. On a per capita basis, the report positions Cincinnati as the nation's leader in broadband availability with 85 percent of the city's population having access to broadband services. Seventy-nine percent of all Ohioans live in areas where they can obtain broadband services. While increasing 25 percent over six months, broadband services continue to be found primarily in urban areas. By 2005, Ohio plans to have 90 percent of its population equipped with broadband access. [SSTI Weekly Digest]

The Child is Fine, but the Parent Needs Treatment. Business Executives for National Security (BENS) said that In-Q-Tel is doing fine with investments and fruits brought to the parent CIA. So what? The CIA isn't ready for such fruit baskets. Read the The Report of the Independent Panel on the CIA In-Q-Tel Venture

Fruit from the SBIR Tree The competition is heating up as more manufacturers introduce 1310-nm vertical-cavity surface-emitting lasers (VCSELs) to the market. For the last couple of years, the optically pumped design by Gore Photonics (Lompoc, CA) has had the 1310-nm limelight all to itself .... Picolight (Boulder, CO) and Emcore have not made any product announcements, but Picolight says that it privately demonstrated 2.5-Gbit/s small-form pluggable (SFP) devices based on a GaAs material system at slightly under 1310 nm at OFC, and Emcore is not yet divulging its chosen material system, but says, as does just about everybody else, that it expects to have product samples available by the end of this year or sometime next year. While many of these companies are playing the technological details of their devices close to the vest. ... "Picolight has managed to generate two quarters of double-digit growth on the order of 30%,We think the reason for that is our focus on optics at the edge of the network, not optics at the core, as well as the focus on the next-generation platforms." [Laser Focus World, Aug 10] Gore Photonics and Picolight each got their starts from BMDO's SBIR.

Would a Bear Take Advantage of a Mouse? Apparently too many stories have gotten around about large contractors taking advantage of small busineses by making a sub-contracting deal and then defaulting on some key promise. The Senate SB Committee has asked GAO to look into the accusations (if GAO can find time after going after Cheney's secret task force meetings.)

Not As Shabby as most spy stories, says a panel about In-Q-Tel. The venture fund started by the CIA two years ago in Silicon Valley has made solid progress but needs work to realize its full potential, according to a report by the non-partisan Business Executives for National Security (BENS). The CIA can breathe a sigh of relief. BENS's conclusion is much more favorable than the view held by many panel members -- well-regarded venture capitalists, executives, lawyers -- just a few months ago. ... Venture capitalist Cox said he was at first perplexed about In-Q-Tel, thinking that a slow-moving government firm in the venture capital world would be a ``total waste of taxpayers' money.'' ... Still, Louie is the first to admit that start-ups want the CIA as a customer, not just for the money. ``Government money is the most expensive money you can ever take. There are all these regulations and rules that go with it,'' he said. ... , the panel found cultural resistance to In-Q-Tel from within the CIA. The In-Q-Tel budget is viewed ``as a burden across the entire agency,'' the report added. [MATT MARSHALL, San Jose Mercury News, Aug 8] So, outsiders think it is getting somewhere and the insiders don't like it. When Gilman Louie finishes with In-Q-Tel perhaps the government can hire him or his clone to fix SBIR which has been strangled by the insiders.

The Agency That Keeps Giving and Giving.And nobody knows how to get rid of it. "Big Government and Affirmative Action" (Kentucky, 224 pages, $29.95), Jonathan J. Bean's brief report on the SBA, is at once a powerful argument for killing off the agency and a shrewd analysis of the political impulses that make its termination nearly impossible. Says DAN SELIGMAN's review [Wall Street Journal, Aug 7]. The agency's responsibilities nowadays are a mishmash. It makes direct loans to companies mindlessly judged to be "disadvantaged" because they are small. .. The agency also guarantees bank loans to shaky companies, thereby also guaranteeing that the banks will remain huge fans of the SBA. ... A recurrent theme in the SBA's history is the tension between (a) pragmatic bureaucrats who tried to limit loans to prospects with some kind of demonstrable business ability and (b) civil-rights partisans who saw the agency as an instrument of social change and therefore bent the rules to favor the uneducated and inexperienced, especially minority-group members. An outsider could plausibly tell himself that neither position made much sense. If SBA loans were going to good business prospects, then who needed the SBA? Its loan recipients would be those who could borrow from plain old neighborhood banks. But if loan eligibility translated into a "competition in disadvantage," then the agency would end up running a racially tinged spoils system guaranteed to generate social tensions. ... the SBA's ultimate political strength comes from another source: the simple, or possibly the word is dopey, belief of Americans everywhere that "small business" is sacrosanct. It is this belief that terrifies politicians contemplating action against the SBA. ... Mr. Bean quotes Herbert Stein's sage comment about conservative governments: "A revolution can hardly be engineered from outside the government, and even conservative governments when in office do not want to limit their own powers. So the radical conservative revolution is the dream of conservatives out of office, but not the practice of conservatives in office." Which explains the durability of a lot more than the SBA.

go to top

Hope Springs Eternal
(Aug 6) that public "investment" will bring fame and fortune. GOVERNOR ANNOUNCES WORLD-CLASS RESEARCH CENTERS ACROSS STATE. ... Largest One-Time State Investment in History to Promote High-Tech Research, Jobs. ..... Governor George E. Pataki today announced an unprecedented series of major awards totaling $102M to create eight Strategically Targeted Academic Research (STAR) Centers and five Advanced Research Centers (ARCs) across New York State -- representing one of the largest one-time high- technology/biotechnology related investments in State history. ... Since 1995, New York State has fostered the growth of its high-tech and biotechnology industries by investing more than $730 million in the technology business sector and our world-class research laboratories and academic institutions.
Note that the first words are "governor announces". Maybe state political money can build world-class research, and maybe the legislature will soon tire of waiting for instant fame and breakthrough science. Most legislatures tire easily, particularly before the next election cycle. Science, on the other hand, needs patient investment. Maybe the governor should study what Corning has done that makes the city look so prosperous without government investment. The Corning Museum of Glass, although a little heavy on atmospherics, shows what can be done with patience in a seemingly mundane material like glass. It's not really mundane but since it is everywhere, it seems common.

Yes. Virginia has a Santa Claus Virginia will hand several thousand dollars to companies who want to win SBIRs. Contact Jan Curren, Director, Technology Awards, Tel: 703/689-3044. Or go to


8 Lessons from the Telecom Mess. Deregulation simply isn't working. ..Celebrations broke out in 1996, as the U.S. telecommunications markets were thrown open to competition. A mogul-studded audience in the grand rotunda of the Library of Congress watched a Webcast of comedian Lily Tomlin and local schoolchildren eager to have broadband Internet services. President Bill Clinton signed the Telecommunications Act of 1996 into law using the very pen President Dwight D. Eisenhower used in 1957 to authorize the interstate highways. ... Shortly after the ceremony, one senator who backed the legislation took Federal Communications Commission Chairman Reed Hundt aside. "We gave one side everything they wanted, and then we gave the other side everything they wanted," Five years later, the telecom industry is a mess. For the first time, industrywide revenues are contracting. Steve Rosenbush and Peter Elstrom [Business Week, Aug 13] have a plan: pain and then relief.
1) Eliminate subsidies for all but the truly needy, and let the Bells raise basic phone rates;
2) force the Bells to open their markets to competition (in a world of well-heeled lobbyists, fat chance)
3) pay for a broadband rollout;
4) slaughter the sacred cows. Take spectrum away from the Defense Dept., television broadcasters, and the satellite industry;
5) eliminating delays that have thwarted the Telecom Act
(not while well paid lawyers are still breathing);
6) don't worry about whether a merged company would dominate one niche, but instead consider its share of the total telecom market;
7) If companies want to charge premium prices, they must develop premium products;
8) Telecom-equipment makers and carriers must accelerate the deployment of new technologies based on Internet protocols and other open standards.
Note there is no call for more research or small high-tech innovation. The industry has lots of great new products, too many for the revenue stream to support.

Wisconsin is about to put $1.5M into TechStar, a consortium of universities, businesses and the Metropolitan Milwaukee Association of Commerce to help turn academic and corporate research efforts into marketable products. Good luck, legislators think that money is the answer to almost every dilemma.

A Deliberate March
(Jul 25) The Army's annual roster of SBIR Phase 2 awards shows a deliberate march into the future on little cat feet. Slow steady progress. 130 projects plus nine Fast Tracks. DOD has de-emphaseized Fast Track and no longer has any stats on its Website. Useful gizmos like Enhanced Hand-held Electromagnetic Induction Sensor for Landmine Detection and Fuzzy Logic-Based Smart Battery Controller and A Cotton Towlette for Nerve Agent Decontamination. Useful software like Logistics Site Planning And Operation Tool and Engineering Design Software for Military Incinerators. Generals still don't like surprises and apparently think they have such a huge lead on any enemy that they need only plod ahead safely to avoid any political or technological minefields. Companies with great stories of innovation can take them elsewhere.

There are precisely 1,454 federal domestic-assistance programs ready to put more than $1.5 trillion into eager private hands. ... The Government Assistant Almanac" (Omnigraphics, 925 pages, $210) ... The existence of so many programs can be a little confusing to even the keenest businessman, so Commercial Service grants provide "assistance on sources of export finance available from the U.S. Export-Import Bank, SBA [the Small Business Administration], and the U.S. Agency for International Development." Thus does Uncle Sam pay you to find more of the money he is giving away. ... Incidentally, there is no sign that Mr. Dumouchel received a grant to compile his catalog. Such self-sufficiency is rare these days. [Doug Bandow, Wall Street Journal, Jul 24,01] Small high-tech business can get into the larder with SBIR's $1B a year handout.

At a Congressional love-in, the small business committee unanimously recommended confirmation of Hector Barreto as head of SBA. During a hearing marked by praise and accolades, Barreto was asked to comment by the Chairman on whether he would commit to fight for a budget that would protect established programs within the SBA. Allowing wide room for future flexibility, he affirmed he would support existing programs and identify new programs that assist small businesses in an efficient and effective manner. Among some of the specific programs that he was asked to maintain a vigorous support for are the 7 (a) loan program, Hubzone funding, 8 (a) procurement, New Markets Venture Capital, Microloan, and SBIR & STTR programs. Will the Bushies then cut the SBA budget while acclaiming the value of the programs?

More, More, Give Us More
(Jul 19) An appetite that feeds on itself, The Bush administration is calling for a 6% increase in research funding. Government researchers say a tripling of the research budget is needed in the next five years. ``We will be behind the rest of the world'' if it doesn't happen, said Ruzena Bajcsy, assistant director for the National Science Foundation. ``Our markets and products will not be competitive.'' ... The U.S. spends about 2.7% of GDP on research and development. .... CEOs from Cisco, Intel, 3Com and about three dozen other tech companies warned last month in a letter to Congress that the current budget proposal would threaten important new projects, and called for a 15% boost in NSF's funding to $5.4B. [Heather Fleming Phillips, San Jose Mercury News, Jul 18,01] The iron triangle will work: companies and universities who benefit, bureaucrats who administer, and politicians who buy votes will all combine with a motherhood story. The only check is a maximum budget allowed for all handout spending and even that is subject to imaginative accounting to allow tax cuts while spending increases. It's pure inspiration to see the arithmetic. SBIR beneficiaries can also pretend that there is a crying need (they'll cry as much as needed) for more investment in what they do.

Making the Government Let Go of the IP Rights Rep. Tom Davis (R-Va.) said July 17 he is considering changes to the intellectual property (IP) laws and regulations that make it difficult for the government to access cutting-edge technologies and collaborate with commercial industry in research and development. Davis's main measures would be to
1) Amend the Bayh-Dole Act to allow government officials to waive any contractor obligation or government right;
2) State in legislation that, when negotiating contracts involving intellectual property, government officials may serve the government's best interests by obtaining only those IP rights necessary for maintenance of fielded equipment and allowing the creator of the IP to retain other rights.
3) Provide a nonjudicial forum for IP disputes.
GAO said such new laws were not needed because government acquisition officials are not yet using the IP flexibility already on the books. A 3M rep said the law has faults that could stand a dose of giving more to the contractors doing government R&D. Although SBIR was not mentioned as a special case, IP rules have litttle impact when the technology has little market value anyway.


Fort Lost in the Woods. Missouri budgeted a dream - $1M for a research park in Fort Leonard Wood - but the governor vetoed $550K for the SBDCs. The Missouri Technology Investment Fund supports the Electronic Materials Applied Research Center, Missouri Manufacturing Extension Partnership, SBDCs (usually), Innovation Centers, and Centers for Advanced Technology. [story from SSTI Weekly Digest, Jul 13] And how many top class scientists and engineers will move there for the isolation from the kind of people they MUST interact with to be productive? There's a reason why the Army puts its basic training sites in such places. Creating Opportunity:Tools for Building Tech-based Economies, September 19-21, Omni William Penn, Pittsburgh. SSTI is a national non-profit organization dedicated to improving government-industry programs that encourage economic growth through the application of science and technology. The Institute also works to advance cooperation between the states and the federal cooperative technology programs for more effective economic development.

Want to Evaluate a Political Program? Ask the beneficiaries softball questions about whether they like it. Which is what GAO did in preparing for re-authorization of STTR since the politicians on the Congressional Small Business Committees want to keep the constituents happy. Government programs in a democracy, after all, are meant to satisfy interest groups and national efficiency is a secondary consideration. In the few numbers generated, GAO found that 106 projects which must have spent about $50M generated subsequent sales of $132M with expectation (dreams) of another $130M this year and $900M after five years. No numbers on profits, federal taxes paid, ROI to any investors, nor what happened to similar companies that never heard of STTR. One note: 94% of the firms had also gotten SBIR and only 1% thought STTR should be canned. GAO Report-01-766R

Yes. It's Fine (grimace); No More Please.
(Jul 9) At a House hearing the federal agencies saddled with STTR objected to more STTR even though they had the good sense not to indict themselves by saying it wasn't worth the money. They co-opted the money into ordinary R&D, then of course, had no results to show other than an input measure of spending the required money. Next day, over in the Senate GAO reported results: from half the 201 Phase II STTRs 1995 - 1997: 1)the companies claimed $132M in sales and about $53M in additional developmental funding with more sales "projected" out to 2005; 2)the companies claimed 41 patents for the core technologies and the creation of 12 spin-off companies, 3) 27 projects were discontinued when the government money ran out While such numbers sound nice to Congress small business panderers, they have no comparison to real companies and no mention of any ROI by any measure. Are they good or bad? Who knows? And no one wants to ask. As for authorization, the administration wants no more; as for Small Business Committees, why should they not want all they can get on behalf of their constituents (even though it is a mirage since no new money is appropriated)?


Two Sobering Ideas for SBIR Advocates
Then there's Bastiat's broken-window fallacy. It seems someone broke a window. It's unfortunate, but there's a silver lining. Money spent to repair the window will bring new business to the repairman. He, in turn, will spend his higher income and generate more business for others. The broken window could ultimately create a boom. [Which is why catastrophes like earthquakes and hurricanes boost GDP.] Wait a minute, Bastiat cautioned. That's based only on what is seen. You must also consider what is not seen -- what does not happen. What is not seen is how the money would have been spent if the window had not been broken. The broken window didn't increase spending; it diverted spending.Obvious? Sure, but we fall for a version of the broken-window fallacy every time we evaluate the impact of a government program without considering what taxpayers would have done with the money instead. Some people even judge monetary policy by what happens, without considering what might have happened. Bastiat stressed that because we have limited resources and unlimited wants, it's foolish to contrive inefficiencies just to create jobs. Progress comes from reducing the work needed to produce, not increasing it. Yet, a day doesn't pass that we don't hear of some proposal to "create jobs," as if there's no work to be done otherwise. If it's jobs we want, let's just replace all the bulldozers with shovels. If we want even more work, replace shovels with spoons. Bastiat suggested working with only our left hands.
Bob McTeer's piece [Wall Street Journal, July 5] points up two SBIR fallacies. SBIR pretends to give new money to small high-tech business and then takes credit for any good results without ever asking what might have happened if the agency R&D program had been left alone to devise its own efficiencies. The politicans are passing out spoons to increase jobs by diverting spending to constituencies who cannot prove their comparative efficiency. Both the beneficiaries and the politicians will claim the good was done. Which is certainly true, BUT not as much good as might have been done by NOT diverting the funds. Fear not, the political calculus will continue to divert the funds because the diffuse losers have no political voice. Concentrated benefits and diffused costs win every time. The present Congressional debate over STTR will illustrate how politics trumps economic sense.


Just a Few Warming Stories Small company gets a government handout and develops a useful product. Therefore, the government fund for such projects should increase. Good politics, mindless economics. Six years ago, Idaho Technology Inc. was a six-person company that occupied a corner of a potato- equipment plant owned by Chief Executive Kirk Ririe's family.Today the biotechnology company employs 65 scientists and engineers who work in a research park in Salt Lake City. Its LightCycler device, which can analyze DNA in 10 minutes, has generated more than $100M in sales, largely through a licensing agreement with Roche Applied Sciences. Idaho Technology developed LightCycler in collaboration with the University of Utah. ..Ririe licensed Wittwer's technology, but sales were slow until they received a [$100K] STTR grant from the NIH. Less than two years later, LightCycler hit the market. Doctors use it to test the effectiveness of drugs in treating HIV. The U.S. military uses it to test for biological weapons. The Internal Revenue Service uses it to make sure powder found inside threatening letters isn't really anthrax, Ririe says. He credits the technology transfer program for the success. ... By 2005, STTR grant recipients expect to post more than $1B in sales for technology developed through the program, according to a GAO study. And as the Army holds, "If a little bit is good, a whole lot is better." The Senate wants to jack STTR from 0.15% to 0.5% and awards bigger amounts per contract. Says one bureaucrat, The current $500K limit on second-phase SBIR grants -- which are awarded to projects already shown to be feasible -- "stifles small-business interest in the program, especially since the small business must share between 30% and 60% of that award with a research institution," says Walter Polansky, who oversees the Department of Energy's STTR program. [story by Kent Hoover, Business Journal of Charlotte, Jul 2] The usual questions intrude: Why would only the government fund a measly $100K for a product that was so close to maturity and sells so well? What measures should the government use to decide whether leaving the agencies alone to do R&D is a better use of the money? Since there is no new money being appropriated anyway, what would happen if the program were to die? Was the government just competing with private market investors to protect the ownership share of the company owners? If so, why?

Need Lobbying Help in Pittsburgh? For Joe Kuklis and his partner, John Dick, the troubles experienced by the Internet industry presented the perfect atmosphere in which to start a < lobbying and consulting> serving tech companies. Back when dot-coms and their brethren were flush with cash, the industry largely shied away from government interaction. But that attitude may be ripe for change with the economic downturn, and Mr. Kuklis and Mr. Dick have started GSP Consulting Corp. to take advantage of techies' inexperience at moving in government circles. Mr. Kuklis, 29, and Mr. Dick, 25, left jobs in Sen. Rick Santorum's Pittsburgh office early this year to start GSP. The company, which also will take old-economy clients, will lobby in Harrisburg and Washington on common issues such as legislative goals and appropriations requests. GSP will focus on governmental assistance consulting: helping tech companies navigate different levels of government to find grants, low-interest loans and contracts. ...Many tech companies didn't need or want to explore these [government] avenues a year or two ago, he said. Venture capitalists and the stock markets provided capital, and some entrepreneurs worried about government regulation. With the economy souring, though, tech companies are turning to alternate sources of funding and customers. ... GSP targets small and midsize tech companies, Mr. Kuklis said, because the entrepreneurs who start them often are too busy to chase politicians and because giants like IBM already are well-connected. GSP's clients include Saturn Capital Inc., which helped fund FreeMarkets Inc., and MediaSite Inc., both of which are based Downtown. [Jason Gallinger, Pittsburgh Business Journal, Jul 2]

More Time for SBIR Comments
(July 2) In response to Congressional requests, the SBA has reopened the comment period on the draft policy directive to guide agencies’ administration of SBIR. Interested parties may now submit their comments to the SBA Office of Technology through July 23, 2001. SSTI has made the SBA’s draft policy directive available on its website at: Three perspectives on the proposed draft are included on the following web page: Comments should be sent to or to: Maurice Swinton, Assistant Administrator for Technology, Office of Technology, Office of Policy, Planning, and Liaison, Office of Government Contracting/Business Development, U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416 []


Peace Through Light says the logo on the lab wall at Kirtland AFB. The Air Force has a bigger hammer idea - lasers to shoot down enemy weapons. David Freedman explains in MIT Technology Review (J/A01) how an enemy cannot outrun photons and how the AF puts great faith in a laser-loaded 747 that might shoot down ballistic missiles (if only the bad guy will let a 747 close enough) for only $10000 a shot. But as the military has found, big laser beams don't come in little packages. The big package means that only a Goliath can be laser-equipped and that the sensitivity of the laser to "adverse action" provides lots of opportunities for Davids. And given the AFD's penchant for using SBIR is direct support of its immediate R&D goals, there should be plenty of opportunity for technology Davids who can schmooze and stroke and do competent work. The SBA may not cry much over the loss of $539M, says Louis Jacobsen, Wall St Journal, Jun 18, because the drones get a 3.4% pay increase. Meanwhile, the Bush budget whacks 40% from the budget (until Congress fixes it) with NO LOSS OF SERVICE because SBA will charge more fees for borrowing and will kill Clinton-era programs incliding VC in inner cities. After all, that VC money is needed in the upscale burbs where folks vote for Republicans.


Can anyone find a shred of technology innovation in this AF SBIR economics study?
Enabling Affordability in Science and Technology The environment within the Department of Defense for acquiring weapon systems is rapidly changing. The defense procurement budget has fallen more that 50% from its peak, and DoD and the services are demanding more performance for less cost. Gone are the days when new systems could be developed and produced simply for reasons of greater payload, better reliability, more weapons on target, improved technology, etc. Now the benefits of performance improvements must be balanced against cost to arrive at a "best value" solution. In other words, the technology must be affordable. In the past, affordability was not often a priority for AFRL laboratory programs because the emphasis was on new technology, and the focus was strictly on performance. AFRL is attempting to measure and report ROI for S&T programs. Since a cost saving can't always be demonstrated for a new technology that provides previously unattainable military capability, innovative methods of measuring both investment and return, need to be developed. . This multi-phase SBIR develops the methodology and tools to evaluate financial returns on S&T investments. Phase I identifies and tests the ROI utility measures of merit. Phase II develops the prototype affordability tool set. DoD's acquisition community has a problem that is also common to many businesses: determine how to determine and then optimize return on investment (ROI) for science and technology. Decisions to invest in technologies that appear to have large performance potentials but do not deliver the desirable ROI, cost millions in lost opportunities. In their effort to develop and produce systems better, cheaper and faster, many large industries, aerospace and automotive, are moving to virtual digital design environments. The objective of this research project is to provide a computer tool that will enable AFRL, DoD, and industry to evaluate the affordability of an investment in science and technology by means of an ROI utility. An effective methodology/tool for evaluating financial returns on science and technology investments that will benefit the AFRL and can eventually be applied to the commercial environment The resulting tool has great potential for effective use in any industry. Just what US industry needs - another ROI model, this time by a government contractor in a set-aside program. While the AF and the DOD need R&D evaluation, the pecularities of government R&D goals make it highly unlikely that such an automated tool would fill the bill. It would be like a lamp post for a drunk - used more for support than for light. Anyway, it is NOT technology innovation; it is yet another service contract for the AF to develop computer tools for the economic aspects of AF management.The AF and DOD also need some seemingly credible way to claim cost savings which it never returns to Congress anyway. Maybe an answer from a computer will be believed (don't bet on it). Knowledge of physics not required. Oh, never mind, the company likes it, the AF likes it, the Congressman from the District will love to announce the Phase 2 award, and teh SBIR advocates will claim another great innovation.

Republicans and generals, who never met a defense budget increase they didn't like, found 18.4 billion reasons to spend more on defense. Amid the fuss about closing B-1 bases, the R&D chief Aldredge talks up 8% more R&D spending (which translates directly into more SBIR). Science sees a 10% rise in DOD research. To some extent, though, they are all dreaming. With no real external threat in the world that would be countered with more military toys, the Dem Senate will drag its feet on more Defense spending and will go for only stuff that services invididual members' districts. Pork will be the meat of choice.

DOD announces the availability of approximately $40M under the Dual Use Science and Technology program for the creation and development of new products or processes to support a production base for numerous service topic area links. Projects should have both military and commercial applications, (1) focusing on technologies that will have a major impact on the cost, performance or sustainability of defense systems and (2) identifying a commercialization path for the proposed technology while also discussing how potential commercial applications are sufficient to support a production base capable of meeting future defense requirements. Small businesses, minority institutions and historically black colleges and universities are encouraged to apply. Proposals are due on August 21, 2001. This solicitation and its application guidelines [Mark Kish,]

Got a Hot Idea and Cold Potential Partners? Not every good idea can be absorbed by the market. Consider the fate of the builders of fiber-optic lines: Level 3 has hit a wall even Mr. Crowe may have trouble overcoming. The company's original ambition -- to build history's largest, most advanced fiber-optic network to carry exploding amounts of Internet traffic -- is now part of one of the biggest gluts the country has ever seen. All told, about 39 million miles of fiber-optic cable stretch underneath U.S. railroad beds, corn fields, natural-gas lines and roads, enough to circle the earth 1,566 times. Companies racing to build or expand nationwide networks laid some $90 billion of fiber during the past four years. Merrill Lynch & Co. estimates that only 2.6% of the capacity is actually in use. Much of it may remain dark forever. [REBECCA BLUMENSTEIN, Wall Street Journal, Jun 18] Those pioneer builders have more capacity than they can sell and thus they cannot easily afford to upgrade to your dandy new technology. They have driven down the price of communications which is good for your service costs but bad for your acceptable cost for a new technology. If you are a typical SBIR winner, you have a great technology that costs too much. And just because the government accepted your commercialization story, you are likelyto have to depend on government for a while to keep the R&D alive until you either get the cost down or the industry's cost threshold somehow rises. The good news is that the government is a sucker for a great technology/bad economics story.


Before the U.S. can shoot down enemy warheads hurtling through space, it will have to find them. And for that, the Pentagon will have to solve the problems of SBIRS Low.This little-known plan for a constellation of low-orbiting satellites, scheduled to be launched during the next 10 years, is supposed to resolve what is probably the toughest challenge of missile defense: finding and tracking with pinpoint accuracy complex warheads traveling at 15,000 miles an hour and surrounded by dozens of decoys. [CARLA ANNE ROBBINS, WALL STREET JOURNAL, Jun 15] This SBIRS is not about high tech small business; it is about a high-tech big problem. BMDO will be doing lots more R&D about this and a zillion other hurdles to the politically desired silver bullet of Republican defense ideas - a missile system that actually works. In general, the Republicans have the same problem that Democrats do - they only know how to spend money in search of a solution to a political problem. They don't actually know how to solve problems other than re-election.

We Got Juice for You. California's energy crisis has inspired a Massachusetts economic development agency to create an ad campaign to lure away the Golden State's coveted high-technology workers and cutting-edge companies. Ads making light of the energy crunch recently began appearing in California newspapers. The ads, entitled "The Lights Are on in Massachusetts," show an aerial night-time view of the United States, with nearly all the country in darkness, except for Massachusetts, which is brightly lit. As though the meaning wasn't clear, the ad also says, "We're inviting your business to harness our energy as well." ... California officials are sloughing off the ad campaign, said Steven Maviglio, press secretary to California Gov. Gray Davis and a former Massachusetts resident. "There's no good reason to move back, and I think most employers see it that way ... Just because the light bill is a couple of dollars more, I don't think companies will pick up and move across country." [Edward Mason, Boston Business Journal, June 11]

Defense S&T wants a bigger piece of a bigger pie. Asst Sect Aldridge told Congress that S&T ought to have 2.5-3% of DOD which would be a $2B increase from its present $7B. Everyone has an idea how to spend more Defense money. That would mean another $50M of SBIR to be mismanaged in suppressing innovation that would actually make neat new products. But the expected direction for any new SBIR money is foretold by DOD's attitude in removing Fast Track statistics from its SBIR website. When your trend is downhill, change the subject.

Uh Oh, Job Cuts at SBIR Firm. Call out the Congressional subsidizers. A small high tech business has to cut 14% of its workforce for lack of business. Ibis Technology, a parts manufacturer for the semiconductor industry, said on Thursday it was cutting its workforce by about 14% as part of cost cutting measures. Ibis had about ten Phase 2 SBIRs from 1990-98 from DOD which loved its SIMOX rad-hard electronics material.


Leaving Small Businesses Behind
(June 4) Calvin Coolidge said, "The business of America is business." George W. Bush, the first president to have an M.B.A. degree, has issued a correction. If his first budget is any indication, the business of America today is big business. Small companies and individual entrepreneurs, it seems, are somebody else's business. ... His budget slashes funding for the SBA by 40. The budget would increase fees for borrowers and lenders, and the agency would have to start charging entrepreneurs for using [heretofore free] small-business development centers ... Over the past eight years, the S.B.A.'s guaranteed loan program nearly doubled. [when] the agency nearly quadrupled loans to minorities and tripled the number of loans it backed for businesses run by women. We also doubled the number of women's business centers across America increasing the flow of capital as well as the information that helps people succeed. Women are now launching businesses at twice the national rate. Today, as growth begins to slow, President Bush is proposing to cut this economic engine. Even as big corporations have begun to make big layoffs, the Bush budget would cripple a small agency that can help pick up the slack. The nation's 25 million small businesses, which employ more than half of the private work force, have been responsible for more than three-quarters of the 22 million jobs created in America since 1992. ... The Fed estimates that 45 percent of banks have already tightened lending to small businesses..... Slashing the S.B.A.'s budget would exact a cost from our economy. I think of the story of a small technology company that in 1969 secured a loan of $300,000 that was backed by an S.B.A. initiative called the Small Business Investment Company Program. It was a small but critical investment in that company's future and, as it turned out, in the new economy. That company was Intel. Today, Intel pays in income taxes about twice what it takes to fund the S.B.A. for a year. Returns on a minimal investment can be huge indeed. Big businesses like America Online, Apple Computer, Staples, Outback Steakhouse and Callaway Golf started out as small ventures and needed a helping hand along the way. How are we going to develop the big businesses of this century if we don't nurture small businesses today? President Bush has said that he understands small business growth. Now he needs to show that he meant it. Fred P. Hochberg was deputy administrator and acting administrator of the Small Business Administration from 1998 to 2001. [New York Times, Jun 2]

Congress Wants to Know Is the CIA's In-Q-Tel experiment in venture capital worth it? Beauty once again will be in the eye of the beholder. Just three years after it started, Congress wants to know if we're rich yet. The same problem that state legislatures have with venture investments: profit takes longer than an election cycle. If CIA is lucky, Congress will just mouth the usual platitudes and then ignore it. Anything else at this early stage would be certifiably laughable.But with a frothing Senate Republican party looking to make some hits, anything could happen when the egos assemble. In-Q-Tel is not the classic government pretend-venture operation that the agencies capture and turn into their purposes. It is intended to capture the new technolgy for the government with an eye to having private capital do a lot of the lifting. Enemies are everywhere. The free-market philes will see evil in such government intervention in R&D info-tech markets, and the government insiders will see competition that could expose them as too stodgy for info-tech. The GAO has already showd itself incapable of judging VC investment by its fear of any real SBIR evaluations. So, if In-Q-Tel is to be judged, who will judge? A CIA paper on In-Q-Tel says bureaucratic stuff like has focused its initial efforts on the IT roadmap and baseline elements of the program.And a little pandering like Congress is to be congratulated for its support to the Agency. Vernon Loeb's June 3 piece in the Washington Post, cites a few numbers and four companies: SafeWeb, Mohomine, Systems Research & Development, and SRA International . Somewhat more interesting is the chance that if In-Q-Tel works for CIA, other agencies would be encouraged to do likewise with at least a piece of their R&D "investment". Converting, say, a fourth of SBIR to such a program might be a good start.

Downdate on DOD Fast Track. Jon Baron, where are you? The DOD SBIR website has not been updated for a year for Fast Track and the link to current data is dead. Jon was the architect of Fast Track (and of the DOD SBIR website) which the military services didn't want. Now that Jon has moved on, guess what happened.


VC Plunge
(May 29)Got A Bright Idea that Needs Capital? Who doesn't? But for the moment the VCs are harder to convince. New investments by U.S. venture capital firms plunged 56 percent in the first quarter to the lowest level in more than two years, a recent survey said. Venture investments fell to $11.7 billion from $26.7 billion a year earlier, according to Venture Economics and the National Venture Capital Association. That was the lowest since $6.2 billion was invested in the fourth quarter of 1998. [Hui-Yong Yu, Bloomberg News,May 28, 01] You could try the government's SBIR program but you will run into a wall of resistance to innovation from technocrats who want incremental improvaments to systems they already understand and care little about whether the idea is profitable ot the entrepreneur. You will also run into a crowd of R&D companies who want to service those technocrats.

Stepped on a Beneficiary. When Bush said he would can ATP, the beneficiaries squealed (naturally). According to Technology Review mag, Program proponents call the president's move outrageous. Johns Hopkins economist Maryann Feldman, one of the outside experts who has conducted studies for the assessment office, says ATP is "probably one of the most studied programs in government." Former NIST director Lewis Branscomb says, "The radical innovations that create both new markets and new technology are the toughest to bring off, but if you do bring them off successfully, the returns can be hundreds of times what the investment was. That's what [the program] tries to do." Whether ATP is coprorate welfare depends on your view of whether government should be subsidizing well-capitalized firms to do commercial research. Advocates of R&D, of course, never saw a piece of R&D that wasn't worth government support.

A Greenwood SBIR Seminar. Phase I Proposal Development and Cost Proposal Preparation Workshops, Norman, Oklahoma, June 6-8, 2001. The Greenwoods promise a day of working up to the proposal and a day on (ugh!)cost proposals and government accounting. Contact One piece of idealistic advice you might get comes from a Greenwood writing in the OCAST Newsletter, True or False? SBIR is a great way to fund interesting R&D. (Greenwood says) FALSE. SBIR is designed to be a means of supporting the development of innovations that ultimately have some useful or commercial purpose, and you are expected to carry your work through to that end point unless it is not warranted to do so due to market conditions. This does not mean that you have to personally manufacture a product resulting from the innovation, but you are expected to work with other manufacturing firms, through licensing and similar arrangements. Which is true only in ideal SBIR theory. In practice, the mission agencies who have a huge piece of the money don't care a lick about your commercial success. Oklahoma's OCAST has some other help for SBIR hopefuls also.


Need an SBIR Company Expert? Fred Patterson has left Radiant Photonics and is available for SBIR companies who need help in organizing a company. Fred has been central in two SBIR companies over 15 years ("the two most successful SBIR award winning companies in Texas", he says), one an R&D contract house and one aimimg to go public. He claims a hand in 150 contracts, especially in the dirty administrative aspects of getting paid. has spoken at National SBIR Conferences, having worked for , and having consulted on SBIR matters with several other companies besides, He has a DUNS number and will be CCR registered with a CAGE code soon. Another Useless Management Theory? What good is a painfully detailed review of a research agency's activities if it's ignored by the politicians who draw up the agency's budget? That's what an NAS panel asks in a new report on a 1993 GPRA law which requires each agency to set annual goals, define how it plans to achieve them, and then measure the outcome. For years, researchers have worried that the act would trivialize federally funded research by forcing agencies to show a short-term payoff from basic research. Now they have a new fear--that agency officials are wasting time preparing reports that lawmakers don't read. The annual GPRA reports "have not been used for a political purpose, which is the ultimate goal," says Enriqueta Bond. Bond co-chairs the NAS panel that looked at how five leading research agencies deal with the act, which kicked in a few years ago. A White House budget official agrees, adding that "the measures used by most agencies aren't particularly helpful" in setting funding levels. [Science, May 18.01]

Thinking of a NASA STTR? Think of the implications of last year's funding of projects like Specific Impulse Analysis of Solid Materials for Ablative Laser Propulsion and Real-time Onboard and Remote Vehicle Health Management and Finite Element Multi-Disciplinary Analysis Of Flight Vehicles and An Intermittency Transport Model for Practical CFD Designs of High Speed Vehicles. These are choices of deeply conservative managers who want predictable results for predictable missions. And they won't trade control for commercialization. Feed them what they want to hear - that you can add to their knowledge base and won't risk their money on unreliable new gadgetry.

SBIR Rules Comments Invited
(May 21) The SBA has published for public comment its draft for the Policy Directive that tells the federal agencies how to run SBIR. SSTI has a downloadable copy Comments due June 18. Four new twists:

1) Interchangeability of SBIR and STTR. Awardees of an STTR Phase I award may submit a proposal for an SBIR Phase II, and vice-versa. Still only one Phase 2 from a Phase 1; 2) Transfer of Phase 2. Agency B can fund a Phase 2 from a Phase 1 by Agency A. This flexibility is a huge departure from the SBA position from SBIR's start. While it does NOT mean more awards, it does mean a second chance for the best competitors and it gives an agency a chance to adopt better Phase 2s than are being offered by its own Phase 1 awards. How it works in practice will depend on how flexible the agencies are in adopting out-of-agency projects.
3) SBA Can Object to Phase 3. Agencies must give SBA a chance (on short notice) to appeal any agency decision to give a follow-on contract to anyone except the SBIR firm. Only mission agencies should be affected. 4) No Self-Funding. An agency cannot give part of the SBIR funds to itself for "help" or "cooperative activities". If it wants to help, it will have to do so with mainline funds. AF Wright Lab or the National Cancer Institute, for example, cannot make a deal with an awardee to get any fraction of the money as a "subcontract" for its internal operations (however noble).

Power Euphoria
(May 21). The Bush energy plan has raised high hopes in the power companies. Some of them may even believe the claim that the US has never had an energy policy until now. Even in the SBIR companies. SatCon shot up a third one day and AstroPower has doubled in a month to a PE ratio over 1000. Indeed a rich valuation.American Superconductor also doubled in a month although it is still less than half its high. Even Spire hopefuls were caught in the updraft despite a steady parade of profitless quarters. Has anyone asked where the money to power the expected profits is to come from just because the government wants more drilling? Has the Carter administration returned to power with money for exploring alternative energy sources? The Bush first priority is tax cuts and oil wells, not energy subsidies to economically uncompetitive energy sources.

Partner or Perish is good advice for SBIR hopefuls. Most SBIR companies don't have a product; they have a piece of a piece of a product. And that piece will go nowhere, except back to the government's doorstep for more exciting development money, until the company finds a partner who knows where to sell it. Matthew Schifrin, Forbes, May 21 writes a piece on how corporate partnerships and alliances have become a way of life. Among a Forbes list of good partners (The Magnetic 40) are some who seem well positioned to adopt new technology: HP, Johnson Controls, GE, Honeywell, Baxter Intl, Corning, Need alliance help? Forbes highlights several including, Booz Allen Smart Alliances , and a consultant Warren Co.


A Red Tape Buster at least in Washington (the one on Puget Sound). Access Washington offers 240 electronic resources and services to state businesses and citizens. Got a Rust Problem or Question Try what Josh McHugh calls a premier website, Corrosion Source that will answer questions expertly to keep ahead of rust which never sleeps.


Boondoggle, says Wallsten
(May 14) Scott Wallsten is back, to torment and provoke. Torment the cheerleaders of SBIR, and provoke thought about whether SBIR is actually serving any useful purpose. In a reprise of his 1997 analyses he says in The R&D Boondoggle, a piece in the Libertarian CATO Institute pub "Regulation", perhaps the greatest obstacle preventing these programs from contributing to economic growth is their lack of appropriate built-in evaluation mechanisms. The lack of such mechanisms makes it impossible to know whether the subsidies made any difference and encourages simplistic and uninformative surveys of program winners, analyses based on commercialization rates, and lists of success stories.... Sadly, political realities will probably prevent the implementation of any real form of evaluation. Program proponents do not want rigorous evaluation that could undermine the program’s popularity. Likewise, detractors who dislike any government subsidies may worry that such evaluations would demonstrate that some of these programs are effective. The only way we can learn if these programs are succeeding is by properly evaluating technology programs to discover what works and what does not. Stand by for high dudgeon from the cheerleaders. Scott has some provocative ideas on how to evaluate SBIR as a subsidy. Evaluating it as a political program has already been done in the back rooms of Congress.
A New SBIR Evaluation From Australia, oddly, comes a study of SBIR whose core conclusion is that SBIR project performance is highest for those projects in industrial segments which themselves receive the highest level of venture financing. Or, from another perspective, the fact that the SBIR program is run through a variety of different agencies may have the (unintended but) beneficial effect of increasing the availability of funding to precisely those segments of the economy where small-firm research faces the highest hurdles, either in terms of appropriability or capital constraints.. Gans (U Melbourne) and Stern (MIT) ... Our test relies on evaluating the empirical relationship between the performance of R&D projects performed by small firms but subsidized by the Federal government (more specifically, through the SBIR program) and the level of private finance for small firm venture financing in those sectors. With the customary cloud of regression math, the authors examine correlations between subsidy and regular capital investment.


Among other innovations the Army wants a gizmo that will use the heat and recoil of a rifle to recharge the battery that runs the smart gadgets like a thermal IR imaging and a rangefinder. Being smart has its price. Army says 30% of the propellant's power goes to complete waste. If you can charge a battery with a 100-gram device that also sings When the Caissons Go Rolling Along, apply to Topic A01-007. If you would prefer the mundane service contract with a gazillion competitors of about equal capability, try A01-019 which wants to Develop a generic, multi-mission capable, reusable modular hw/sw suite and development environment to support advanced supervisory/semi-autonomous and autonomous control of multiple platforms for materiel handling, re-supply and logistics automation for Future Combat System (FCS) applications. Or A01-070 to establish the capability to generate and validate selective fidelity simulation models of rotorcraft dynamics from a primary comprehensive modeling tool to support all applications in the development and operational cycle with consistent, traceable dynamics models that are customized to the application. Advantage to the schoolers who have broken bread with the topic writers. For the whole Army solicitation Can You Predict the Future? has DARPA got a deal for you. Even though you could earn unlimited money in the real world, DARPA wants to give you $100K to reveal your secret and then maybe $750K to do it for them. DARPA's SBIR Topic 012-012 wants to a develop electronic market-based methods and software for decision analysis, to aggregate information and opinions from groups of experts. Those who can, do; those who can't, get SBIR awards? Is this new technology? Well, both the agency and the awardee will say that it is. Sound like just operations research? Is it commercializable? DARPA says it wants only market-based methods. Which makes one wonder why anyone with true market-based methods would piddle with an SBIR. For moire details and wishes.

Senators Kerry and Bond introduced a bill to extend STTR and to raise its tax level to 0.5% over nine years. The press release was the usual political blather that goes with a handout.

Triple play. When biomedical lobbyists Frankie Trull, Tony Mazzaschi, and Barbara Rich (1) wanted to stop a federal agency from extending its regulatory arm to laboratory rats and mice, they contacted the University of Mississippi's Wallace Conerly (2), who called his state's senator, Thad Cochran (3), who added language to a spending bill that did the trick. .... ....Spurred by fierce competition for government cash and a desire to shape regulations, scientists and their institutions are deploying dozens of lobbyists in Washington and spending millions of dollars to press their case. In the process, researchers have shed their traditional distaste for politics and embraced such once-taboo tactics as hiring consultants and assembling focus groups to test their sales pitch. The techniques have helped the science lobby scale new heights, including three successive years of double-digit growth in the budget of the National Institutes of Health (NIH). Biomedicine's success has produced tension in the community, however, as researchers from less favored fields scramble to catch up. The new message is that balanced growth is good for all of science. [Science, A May 4,01]

The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. [George Bernard Shaw] Tell that to the bureaucrats who use SBIR to add yet another data point to what they know already and then wonder (or rejoice) about getting nowhere.

States Play a Venture Game. With all those speculators getting rich in the 90s, why shouldn't a state government try to get some too? Lure venture money to the state by guaranteeing a return? Arkansas, in searcj ot $80M will use tax credits to guarantee a rate of return. North Carolina, Idaho, and Arizona are getting ready, says ROBERT GAVIN in THE WALL STREET JOURNAL, May 2. They want what Oklahoma says it got - a 28% return on its state VC fund thast guaranteed 8% to investors and shahred the investors' profits. What state legislature could sit still in the inter-state competition for job creating industries? Colorado, Ohio, and Pennsylvania give breaks. Local companies will surely advocate a local money source, just like the SBIR companies advocate free federal money. Naturally, some realists balk. Oklahoma's model program worked fine during the bubble but will it work so fine when VCs are retreating? Should a state government be dabbling in private investment markets anyway? Do they know what they are doing? To be sure, the politicians will fix on a few anecdotes that pretend to show success. They will have the same wishful thinking that surrounds the national SBIR program. A few good sound bites come next election time are worth surrendering most principles of the role of a government.

Some technologists and policymakers fear that if the collapse [of dot-coms and other info tech] continues, good ideas will get thrown out with the bad. When investment money disappears, they argue, creativity follows. "Given the downturn that we are seeing in capital spending for new information technology, it's quite possible that the pace of innovation is going to slow down," said Daniel Kevles, a science historian at Yale University. As a recent report from the National Science Foundation put it: "Innovation . . . does not just happen. It has to be paid for." If so, there's trouble ahead. [Ariana Eunjung Cha, Washington Post, Apr 30,01] If there's trouble to be seen, there will be calls for Congress to fix it with the favorite tool (no, not the death penalty) - money. Farms or tech companies will appeal for subsidy. Federal R&D agencies will appeal for more R&D money without worrying atoo much about efficiency of their spending. One call will be for more SBIR (although NOT from any federal agency) regardless of the ugly fact that there is no proof that 15 years and $10B made much difference. Congress should resist throwing good money after useless money unless and until either a hard and honest evaluation shows the money was well invested or a new managment scheme is put in place.


More Analysis Please The National Science Board says that the government should spend more energy analyzing its $90B a year R&D. Tracking the economic payoff from current investments, laying out possible trade-offs, and comparing U.S. results to those of the rest of the world. The board will hold a symposium in late May to discuss the 20-page report, entitled "The Scientific Allocation of Scientific Resources." which can be had [Science, Apr 6] maybe the board said something about the unevaluated $1B handout in SBIR. A Fox in the Henhouse? Bush appointed a VC, not a prominent scientist, to head the science advisory board. Floyd Kvamme, a legend in Silicon Valley will chair PCAST a panel of volunteers offering advice which any political president feels free to ignore.


Brad de Long, professor and former political appointee, says One of government's basic missions is to invest in research. A lot of research is not profitable for private industry but very worthwhile for society to undertake. True enough, but it says nothing about HOW government should do so. That's where the questions start. For SBIR, for example, is it sufficient and smart to do with that 2.5% just what is being done with the other 97.5%? Or is there a way to harness what small business does best rather than what large business does best? Or is that not a recognizable question in a bureau?

Speaking of Bureau Research ... Progress toward what the industry calls its next-generation lithography lends credence to Intel's strategy of relying on collaborations with universities or national laboratories to tap a wellspring of basic research and development resources. The Intel approach stands in marked contrast to the large centralized laboratories built by AT&T, IBM and Xerox, which have often invented technologies that they never succeeded in commercializing. "The classic research model never worked," says G. Dan Hutcheson of VLSI Research, a market research firm that has tracked these technologies for 25 years. "Intel looked at research in a new way and showed how to get a return on investment from it." Even before the founding of Intel in 1968, Gordon Moore had developed a bias against the traditional approach after he witnessed Fairchild Semiconductor squandering capital on research that never turned into products during his tenure there in the 1960s. [ Gary Stix, "Getting More from Moore's", Scientific American, Apr 01]

Sell That Loss. In the never ending search of states to distinguish themselves as having the most pro-high-tech environment, Maryland and Virginia legislatures this session are considering innovative tax benefit programs to assist cash-starved, early-stage high-tech companies. These initiatives are being stimulated in part by a successful two-year-old New Jersey program, the Technology Business Tax Certificate Transfer Program, which allows firms to sell their net operating losses and research-and-development tax credits to larger profitable companies for cash. The New Jersey program allows companies that meet certain criteria small high-tech firms headquartered in the state that are financially strapped and have good prospects for success to take their net operating losses and their R&D tax credits for up to seven years and sell them for cash to profitable in-state companies for at least 75 percent of their value. [Robert Snyder, Washington Techway, Feb 26,01]

The Devil Is in the Details. The Bush Administration this week tried to prove Albert Einstein's maxim that mathematics isn't necessarily reality. While officials talked up the president's 2002 budget request as a real boon to science, the numbers said otherwise for nearly every agency except NIH.The pronounced tilt toward bioscience is generated by a proposed 13.5% increase for NIH, while the National Science Foundation (NSF), DOE's Office of Science, and NASA would get essentially flat funding. [David Malakoff, Science, Apr 13] DOD would go up 9%.

Orlando Incubator Seeks More Space The Central Florida Research Park needs more space to accomodate all the companies who want to hatching help. It plans a fund drive to raise $4M and find someone in charge. So far, the incubator has had only "soft money" -- grants from groups including the Florida High Tech Corridor Council and UCF. Incubator entrepreneurs, step up [facts from Chad Eric Watt, Orlando Business Journal, Apr 23]

Keystone Politician's Jealous
(Apr 24) It's all in the politics, whines PA Rep Curt Weldon in a Philadelphia Business Journal story about CA getting a disproportionate share of research money. I'm ready to take on California, California has siphoned off the bulk of the research money for this country and I think in some cases undeservedly so. California has benefited from the fact that they've got some good schools and great companies, but in the end, if I'm a bureaucrat and I'm spending federal money on research initiatives and I've got two equal applications, I'll give it to Caltech because California has 51 members of the house and two senators. Weldon's complaint could be bad news for SBIR and other merit-based handout programs. The have-not states want their share (even though they do not know how to calculate what a fair share would be for high-tech research). And SBIR has only itself to blame for opening the door for such whining by ignoring any realistic economic evaluation criteria for results. When input is the only number and hype the only output, any state is equal to any other state.

It is often said that the job of the Chief of Staff of the Army is to protect brilliant young captains whom the system would otherwise crush, writes Fred Andrews as he reviews "Creative Destruction" by two McKinsey consultants [NY Times, Apr 22]. So, it must be, too, if SBIR is to do anyone any good. Some senior agency technocrat must liberate SBIR to create innovation instead of punching predictable tickets. No agency seems to have the will to accept such creative destruction. They need to borrow some ideas from Jack Welch who ditches as many bureaucrats as he finds in GE.

Battery Maven? If you want to propose yet another battery SBIR to the government with the claim that electric vehicles are your market, you might read The Electric Vehicle and the Burden of History David A. Kirsch, Rutgers University Press, reviewed by Leonard S. Reich in Science, Feb 23. Proposers all too often expect the government to accept vague claims of a market when the ugly fact is that the proposer has not though through the market probabilities even if the idea works technically. Vehicles are a hard market to penetrate since the gasoline/diesel engine has a lock on power and the highway system isn't about to change for "intelligent" vehicles. The good and bad news is that the government will fund battery ideas anyway, but will make absolutely no effort to help the company over even the next hurdle in the road to selling a product.

Vince Kiernan, Washington guru for Laser Focus World (April 01), fears that Bush's budget proposal on ATP that uses the title "Reducing corporate subsidies" means that Dubya might do what his father didn't - kill ATP. The budget plan is to honor existing contracts with what money is left over from this FY. Then bye-bye corporate welfare, hello drilling subsidies. Every Republican has his own idea of the proper corporate subsidy.


Smarter Judges Have Conflicting Interests. An Ohio tech fund pulled its awards because some of the losers complained that the judges were not disinterested. State questions process, postpones tech grants. The Technology Action Fund was about to pass out $14M to the allegedly worthiest proposers when one proposer said that some groups and organizations received an advantage in the grant decision-making. With a little snooping of the public records, the complainer found that: Several reviewers that were affiliated with companies or organizations that ultimately received funding included: Todd Ritterbusch, president of the Technology Leadership Council, which received approval for a $1.625 million grant; David Allen, assistant vice president for technology partnerships for Ohio State University. The OSU Research Foundation received approval for a $255,000 grant, and the Science and Technology Campus Corp. at Ohio State received approval for $350,000; Julian Gravino, president of Toledo-based EISC Inc., which received approval for $326,588; Dorothy Baunach, deputy director of Cleveland Tomorrow and founding president of the Edison BioTechnology Center, which received approval for a $1 million grant. No suprise, though, as the board memebrs defended the processs, saying that review team members were required to recuse themselves from involvement in any proposal with which they had an affiliation. [story from Business First of Columbus, Apr 2] Whatever claims of recusal were made, such a process inherently brings in biases that can never be explained to the losers. It was for such a reason that the federal government barred government labs from both reviewing and participating in STTR projects. If a process is not seen fair to the losers, it will always be tainted. The federal government has a similar problem in those agencies that use peer review: NIH, NSF, EPA. The cleanest answer is have government people do the reviewing even if they don't have the scars that make for knowledge of the marketplace. And with new technology, bringing in supposedly disinterested companies doesn't wholly wash bacause the governemnt is asking companies to vote on potential competition. Ohio's answer may be to have separate competitions for help organizations and for profit seeking companies. The help providers can always find a n excuse why their services are needed to foster neew technology (even though most such claims are self-serving and they are rarely pressed to prove their value by accepted economic standards).

THE FINAL FRONTIER. "Missiles Over Rockets; NMD Trumps NASA" By: James Pinkerton, New America Foundation "If to govern is to choose, then Bush made a clear choice in the budget; National Missile Defense (NMD) is a big winner, while NASA is a mild loser." - James Pinkerton [, Mar 18]

The Ben Franklin Technology Partners of Southeastern Pennsylvania has boosted the size of its biggest seed-capital investment to $500K and made some other changes in its funds for small technology businesses.... The changes were based on feedback the state-funded economic development organization received from focus groups that included entrepreneurs and service providers. In addition to creating a new fund Ben Franklin also raised the amount of the investments two of its other funds can make. [Philadelphia Business Journal, Mar 19,01]

Technology fund in jeopardy under Bush budget. Scientists and companies that received federal funds from the Advanced Technology Program say cutting it would leave a huge gap in the availability of investments in future technology. If Bush gets his way, the Commerce Department program would have its funding -- which skyrocketed during the 1990s -- suspended pending a review.``The program hasn't been thoroughly evaluated. We believe that it ought to be,'' Commerce spokeswoman Mary Crawford said. .. ``There have been a couple reports that have raised questions about the program,'' she said. ... Nevertheless, she said, cutting the program completely is ``not on the table.'' ... Henry Kelly, president of the Federation of American Scientists, said that defending ATP has been difficult because the program only funds emerging technologies, and doesn't pay for a specific product. ``Once you've got the basic idea in play, then people can run off and make proprietary products,'' he said. ``There's a huge (funding) gap that's left in places where the public has an interest in moving technology forward. ATP filled that brilliantly.'' ... ``It's probably the most investigated start-up fund in the history of the government,'' he said. ``Its timing was such that it was the new kid on the block at the wrong moment in history.'' [D. IAN HOPPER, Associated Press, SFChron, Mar 14] Weep not for ATP unless you believe government is a smart investor in new technology. Scientists and beneficiaries of course think so; they can always come up with flowery accolades. ATP basically invests in things too low on the ROI scale for private corporations for reasons not exactly aligned with classic functions of government. Politicians are suckers for a story of the future but are not able to evaluate the economic consequences of what they are spending money on. In general, programs that evaluate themselves, as ATP does, will get glowing reports because they can control the metrics used. A cold look at ATP, as an alternative to government's staying out of commercial development, will not happen. I wouldn't worry; the Republicans will make a lot of noise about free-markets and then go along with continued funding.

Instead of aiming to keep aircraft and weapons production lines humming for decades, Defense will likely funnel more of its limited funds into research and development. Good news for the SBIR people, more DOD money, although at the exopense of the small suppliers to DOD hardware buillders. The percent of business going to small business is NOT likely to change.

Unique incubator now open at Central State. an incubator that is the first of its kind in Ohio and only one of three in the nation is now open at Central State University in Wilberforce. The National Environmental Technology Incubator with six new businesses focused on producing and developing environmentally friendly products. According to Subramania Srithran, director of the Water Resource Management program at Central State, the incubator offers amenities that companies in the field cannot find elsewhere. Some of the offerings: 20,000 square feet of laboratory space, a walk-in explosion-proof refrigerator and a darkroom. Central State also offers faculty advisement, a labor pool of trained students [Kevin Kemper, Dayton Business Journal, Mar 5]

[The budget] calls also for a suspension of funding for ATP, a Commerce Department program that supports research and development efforts of private corporations. These are positive steps. .. Despite a thriving private capital market, ATP provides direct subsidies to high-tech firms, without any payback mechanisms or reason to believe that funded technologies offer unique social benefits. .. there is much, much more to do to rein in corporate welfare. There are dozens of programs that should be canceled, or restructured to demand payback from the corporate beneficiaries. [Ralph Nader, Wall Street Journal, Mar 7] Nader's view would apply to SBIR as well for the non-mission agencies. The mission agencies don't do ATP-like subsidy anyway; they flout the commercialization mandate and do their normal R&D procurement.

Well, the tax credit sounded good in the campaign A BUSH PLAN to extend a research credit would cost far more than expected. President Bush has endorsed the permanent extension of a business research and development tax credit scheduled to expire in mid-2004. During the campaign, he said permanent extension would "create an environment that rewards investment in innovative technologies" and "spur the sustained, long-term investment in R&D that America needs to develop the next generation of critical technologies -- both civilian and military." But fresh congressional estimates show a much higher cost than only a year ago. Permanent extension would cost about $47 billion through 2011, says Lindy Paull, chief of staff of Congress's Joint Committee on Taxation. Last year's estimate: about $24 billion through 2010. Why the big increase? Ms. Paull cites two major factors: new IRS data showing much greater business use of the credit than staffers had expected and a stronger economy. [Wall Street Journal, Feb 28]

The final revelation came from Mr. Clinton's successor, George W. Bush, in the course of his first press conference (it can be revealed, incidentally, that he took an anti-rabies shot before braving proximity to the baying pack). Dubya's revelation was that, among his other attributes, he's an economic seer. Thus, in pushing his tax cut, he prophesied that the economy over the next 10 years will grow at a pace faster than even the scarcely restrained projections of the Congressional Budget Office. We can only assume that in peering into his crystal ball, the President had the guidance of professional economists, explanation enough for what seems to us a patently wrong call. As to the CBO, it long has specialized in nonpartisan cockeyed estimates. Over the past two decades, its forecasts have been off the mark by an average of $57 billion a year. Its technique is basically to estimate by extrapolation, so it invariably is too optimistic when deficits are the rule, as they were throughout the 'Eighties and into the early 'Nineties, and too cautious when surpluses prevail, as they have since fiscal '93. We think the economy is undergoing another sea change in which buoyancy is draining away and that, accordingly, projections of the surplus will prove far too high because expectations for growth are much too high. On this score, we suspect it's hardly an accident that the surpluses mounted dramatically starting in '96, just when the stock market turned irrationally exuberant. We're not expecting the same sort of boom in equities over the next five years. Hence we're not expecting the same sort of lush surpluses, either. [Alan Abelson, Barron's, Feb 26]

Harry Johnson, who retired as NASA's SBIR director in 1994, died in Washington at 76. Harry served in the Army during World War II, taught applied mechanics at the U of Kansas before moving in 1951 to Cleveland, where he conducted research on supersonic propulsion at a laboratory of the National Advisory Committee on Aeronautics. In the mid-1950s, as a researcher at a propulsion laboratory in Los Angeles, he led a team that designed and developed the descent engine for the lunar excursion module, which took astronauts from the lunar orbiter to the surface of the moon. [Washington Post, Feb 18]

R&D: Industry Leaves Government in the Dust. Backyard inventors make better headlines, but the true engines of discovery in the U.S. are its industrial, government, and academic labs. The flow of money into these research and development centers has never been greater. This year, a record $277B will pour into labs' coffers, 5.1% more than in 2000, according to a study by the Battelle Memorial Institute, a nonprofit research organization based in Columbus, Ohio, in cooperation with R&D Magazine. Just 20 years ago, industrial and federal investment in R&D were on a par. Industry outlays have since more than tripled in real terms, to more than $190 billion. Meanwhile, federal R&D funding has grown much more slowly, increasing by just 28% in real terms since 1981, for a grand total of $72B this year. Critics may worry that the soaring importance of industry-funded R&D hurts the pursuit of pure science. But Jules J. Duga, a senior analyst and author of the study at Battelle, disagrees. ''Industry does more basic research than it's given credit for,'' he says. In addition, as the ongoing flood of data from the Human Genome Project shows, the federal government is becoming adept at publishing its findings. ''That shift allows for faster commercialization of new discoveries,'' says Duga. [Business Week, Feb 14]

Leave the New Economy alone, and it will thrive. Try to pick winners or favor one producer over another, and you have created a recipe for disaster. Oh, and by the way, Jim Barksdale is one of the Silicon Valley types being mentioned as a possible high-tech czar. Barksdale, when he was running Netscape, helped persuade the Justice Department to file the antitrust suit against Microsoft that became the symbol of destructive federal intervention in high-tech. [Jim Glassman,, Dec 19]

SBIR Still Breathing
(Dec 13). Despite a failure by Congress to re-authorize SBIR by its Sep 30 expiration, NASA and DOD (but not NIST) are still running the program and accepting proposals. It will probably get swept up into the final appropriations bills and all the rest of the session end stuff before Congress ends. Any debate over the terms has ended and it is just a matter of procedure. It is not the kind of stuff that the Republicans would threaten to carry over to the next Congress when there will be a new president even if they wanted to open that box after the poisonous election.


R&D: Industry Leaves Government in the Dust Backyard inventors make better headlines, but the true engines of discovery in the U.S. are its industrial, government, and academic labs. The flow of money into these research and development centers has never been greater. This year, a record $277.5 billion will pour into labs' coffers, 5.1% more than in 2000, according to a study by the Battelle Memorial Institute, a nonprofit research organization based in Columbus, Ohio, in cooperation with R&D Magazine. Just 20 years ago, industrial and federal investment in R&D were on a par. Industry outlays have since more than tripled in real terms, to more than $190 billion. Meanwhile, federal R&D funding has grown much more slowly, increasing by just 28% in real terms since 1981, for a grand total of $72.1 billion this year. Critics may worry that the soaring importance of industry-funded R&D hurts the pursuit of pure science. But Jules J. Duga, a senior analyst and author of the study at Battelle, disagrees. ''Industry does more basic research than it's given credit for,'' he says. In addition, as the ongoing flood of data from the Human Genome Project shows, the federal government is becoming adept at publishing its findings. ''That shift allows for faster commercialization of new discoveries,'' says Duga. [Business Week, Feb 19] Love a Tax Cut? Cut Science.In trying to make room for his tax cut, President Bush is having to chop another Republican priority: increased government spending for science. Funds for the NSF will rise just 1% in 2002 one of its tightest budgets in years. .. NIH stands out, because its funding is expected to continue rising by billions of dollars under a five-year plan to double its budget by fiscal 2003. That growth rate might be difficult to sustain politically. Given the spending limits imposed on the rest of the Department of Health and Human Services and the scientific community, NIH's special status is provoking resentment. Republican Rep. James Walsh of New York, who oversees the NSF budget, called it "absurd" to expect the agency to be held to the 1% increase now forecast. ... NIH could eat up as much as $3.4B if it is to keep on pace for the five-year expansion. That leaves little room for other domestic science programs. NSF has powerful backers in the universities that receive its grants. [DAVID ROGERS, THE WALL STREET JOURNAL, Feb 16] Gotta have more science? Oh sure, and less taxes, and more defense, and more of everything. Pie for everyone. Bush will find that budget cutting works only in the abstract as every political interest group proves why the program he wants to cut exists and is likely to thrive.

Pssst! Try Maryland Legislation that would drastically alter the state's trade secrets laws is being touted as the next step in making Maryland a good place for technology companies to do business. Industry insiders believe passage of the Uniform Trade Secrets Act is going to be vital to the local technology community. This bill requires a company claiming the theft of a trade secret to identify the actual trade secret as soon as charges are filed. Currently, a company has up to six months to identify the specific secret, which makes it hard for the accused company or individual to mount a defense. [Roger Hughlett, Baltimore Business Journal, Feb 12]

Ohio Capital. A $20 - $50M venture capital fund geared toward Central Ohio start-up businesses is being raised by the Columbus Technology Leadership Council and would receive financial support from the Ohio State University. Creation of such a fund would be a coup for technology entrepreneurs who, for lack of local venture money, have been forced to look for critical financing from Cincinnati, Indianapolis, as well as the east and west coasts. [Laura Newpoff, Business First, Feb 12]

an interesting question which I think has been the heart of TJ Rodger's argument against Silicon Valley lobbying the Federal Gov't. Once government is seen by the software industry as a way to protect market shares, the software industry becomes indistinguishable from Chrysler or ADM - another corporate welfare hog. [D McCullagh, politech, Feb 16]


The Bush administration is planning broad cuts in government subsidies to U.S. businesses, alarming many corporate executives who expected more from a Republican White House. White House budget officials are telling government agency heads to expect that business-subsidy programs will be trimmed to provide money for [other] Bush priorities. Programs facing cuts include trade-agreement enforcement, export promotion, farm subsidies and technology development. [MICHAEL M. PHILLIPS, THE WALL STREET JOURNAL, Feb 15,01] Cutting ATP would achieve what Bush pere could not (or would not do), get government out of commercial development, especially for firms that can invest on an ROI basis in whatever makes commercial sense. For small firms with risky new technology there is oodles of money in SBIR that is being merely used for incremental development by several agencies.

Government science funding in 2001 will be up 9% at $91B, says Science, Jan 5. That's just science and no development which is the really big money for the mission agencies.SBIR hopefuls for NIH and NSF will welcome the 14% increase for those agencies. Of course the science advocates cry it is not enough since they can always find a crisis needing more public investment in professors. The Bush administration with its budget cutting mantra except for Republican favorites like anti-missile systems has not weighed in yet on what it will propose for 2002.


The venture capital boom may be over, but now is a great time for risk-takers. Last year's tech stock drubbing has worked its way through the financing food chain and reached the venture capital market. And that's not a bad thing, say local financiers. "For folks who want to take risks, this is a very good time to be making investments," River Cities Capital Funds Principal Rick Kieser said. For VC firms, these are potential golden years. Previously sky-high valuations have fallen, allowing them to get more bang for the bucks they raised last year. And because the initial public offering market has all but shut down, venture capitalists don't feel the pressure of having to get a company to market quickly. They can take more time both to decide on investments and to nurture firms toward an exit and a payoff for their investors. All the while, however, business plans continue to pile up on venture capitalists' desks, though the outflow will not match the record levels of the past two years. "The VC boom is over," Kieser said. "There is no free flow of funding anymore." Entrepreneurs at cash-hungry young companies have taken notice. A year ago, funding grew on trees. Now, they must adjust to the fact that investors are applying increased scrutiny to their business plans, spending rates and management strength. Mark Heesen, president of the National Venture Capital Association, said venture capital firms have been focusing this winter on companies they have already invested in. Profits matter, after all. Investors' increased attention to existing investments has come at the expense of the startup community over the last year. New investments' share of total VC dollars has dropped from 34% in 1999 to just 25% in the fourth quarter of 2000, according to the NVCA. In short, the froth about "funding the next big thing" is gone. It's been replaced by a much more sober reality that profits -- or at least a steady progress toward them -- do, after all, matter. Funding is still available Companies with bright prospects and solid management teams continue to get funding. There is no shortage of activity or money, but the latter is not flowing as freely as it did in 1999 and 2000. Yet entrepreneurs are hopeful that they can still get a piece of the action."I do think things are going to loosen up," Joseph said. "It's just a matter of it waiting for the right idea." [Geert De Lombaerde, Cincinnati Business Courier, Feb 5,00] The pull-back by VCs is good news for the SBIR advocates who depend on an argument that VC won't invest in innovation. The advocates have been in denial sine the late 1980s as VC investment skyrocketed from $1B a year to $100B. Any pull-back to even half that is a huge advance over the conditions that spawned SBIR in the late 1970s. But now there is a coterie of beneficiaries who love the annual handouts for ordinary R&D. In usual political style they have formed the classic iron triangle of bureaucrat, legislator, and beneficiary that ignores the facts of life in favor of continuing a handout from the Treasury. State's R&D credit may fall to budget shortfall. The technology industry's treasured goal of a research and development tax credit may fall victim to the North Carolina legislature's $500M budget shortfall this year, but tech lobbyists are planning to squeeze in as much of their agenda as possible. .. doubts run deep that industry groups like the North Carolina Electronics and Information Technology Association will be able to win a 5% tax credit for businesses that spend money on R&D in the state. In light of a huge projected deficit, the legislature is going to have to struggle to find money for a variety of programs."Nothing's going to be easy in this session," said NCEITA President Joan Myers. But she said a number of priorities do stand a chance, including another tax reform that calls for a credit of up to $1,500 per year per person to businesses that provide high-tech training to employees. Another industry group, the North Carolina Technological Development Authority, is going to have to lobby just to stay alive, said President David Emmett. The TDA receives $3.5 million in operating funds from a state budget item that has to be reapproved each year. By funding the TDA, Emmett said the legislature would be directly supporting the technology industry because the group in turn invests money in startups and supports a network of business incubators. Perhaps more significantly given the current budget situation, NCEITA wants the state legislature to alter its economic modeling policies to allow lawmakers to factor in "potential" increases in tax revenue from the business activities that may be generated by tax credits and deductions, such as the R&D tax credit. [Matt Evans, The Business Journal of the Greater Triad Area, Feb 5]

Here Comes Government. As government pension funds accumulate more and more boomer retirement money, they are looking for places to invest it until the boomers start demanding it back. The Republican psu for privatizing Social Security would also stick government's nose into equity markets as a vested interest. CalPERS says it will take ownership stakes in two investment firms in the next few months. The $170B pension fund will announce one partnership this week, chairman Michael Flaherman told Red Herring on Monday at the Private Equity Roundup conference in Scottsdale, Arizona. The second ownership stake will be announced in the next few months. [, Jan 30] Stand by for posturing unless the market dives and exposes the inherent risks in equity investment. In which case Ma and Pa would soon decide that a certain SS return is better than an uncertain euqity investment return regardless of the pushy talk by the brokerage community that stands to clean up on government's becoming an equity investor.

A Dirty Dozen? One company has won a dozen Fast Track SBIR awards with the matching money coming from Navy mainline programs. Is anything dirty about a dozen when few get any at all? No, since Fast Track has no limit on total awards or money, no company is deprived of an award by the agency's running out of Fast Track funds. And at least 90% of qualified comapnies who apply for Fast Tarck get it. How long this will go on remains to be seen since the FT champion, Jon Baron, left DOD SBIR for another DOD job.

A Common Mistake by Proposers SBIR proposers think the government wants to hear that new technology will reduce health costs AND improve health care. Nonsense. New high-tech equipment puts hospitals in a costly dilemma The newest and most advanced medical technology is a "must have" for hospitals and health care providers. But when medical devices first come out, they are extremely expensive, said William Hendrick, chairman of radiology for Albany Medical Center.For example, the Senographe 2000D, a digital mammography system developed and made only by GE Medical Systems, costs between $400,000 and $500,000. By contrast, a conventional film mammography machine costs $80,000 to $100,000. There are only about 75 Senographe units in the United States, and none in the Capital Region. The price is bound to drop with time, and when the cost and benefit curves cross, hospitals will be more willing and able to get the technology, he said. Hospitals and other health care providers want the best tools that allow them to improve patient care, realize cost efficiencies in the long run, and give them an edge over competitors. But it is often difficult or impossible to justify the initial cost of such technological innovations. "Hospitals are not in any position to subsidize something that cannot support itself financially," Hendrick said. After being "financially decimated" by the federal Balanced Budget Act of 1997, all hospitals are under even more pressure to justify the costs of their programs. The problem with getting the Senographe is that the cost of mammogram services is quite high, because the procedure is time-intensive and requires a high degree of expertise, while reimbursements are quite low, said Hendrick. Exam fees range from free--through subsidized programs--to $150. Every third-party payer reimburses at a different rate, and patients are not necessarily responsible for the unpaid difference. "The reimbursement barely, if at all, justifies the cost. If you're losing money on every case, you can't make up for it in volume," [Shannon Ballard, Albany Business Journal, Jan 22]

go to top