Government Stories 2002-03

Stories that earlier appeared in Nelson's News 
Note 1: Carl Nelson Consulting, Inc is not an investment adviser and may hold a financial interest or client relationship in companies discussed.
(Note 2: Carl Nelson Consulting does not endorse these companies or organizations or their activities.) 
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Government R&D 2004.  AAAS has now posted a comprehensive analysis of R&D in the close-to-final FY 2004 budget, highlighting important funding trends. The U.S. federal R&D investment will total $127 billion in 2004, an increase of nearly $10 billion. More than 80 percent of this increase, however, will go to the Department of Defense, leaving most of the other R&D funding agencies with modest increases or even funding cuts. The Department of Homeland Security is a big winner with a 56 percent increase in its R&D portfolio to $1 billion. The National Institutes of Health, after the conclusion of a five-year doubling campaign, will receive increases of about 3 percent. The final budget may not be signed into law until late January 2004, or even later, due to procedural delays. For the full analysis, go to:  

Jobs Go Away, Government Dithers. As IBM plans to shift  4700 programmers to India, China and elsewhere, what does (should) the government do? America prides itself on begin the creator of technology and the business that results. And the small business advocates claim that SB is the great growth and innovation engine which no politician dares dispute.  On that basis, they convinced the Congress to divert an arbitrary 3% of the federal R&D funds into a sheltered program for SB innovators. And what's been the result? Don't ask! Because no one knows and few even want the question asked. Why has this dithering happened (other than the usual political self-interest mongering)?  No SBIR agency cares about the national economy; instead they each push their SBIR money into self-serving R&D that takes no account of national economic results. 

Congress will provide only $40M for MEP this year, a 63% slice from the current funding. Even the conservative vote-pandering Congress has a limit on corporate welfare. SSTI Nov 21 says,  In a September 2003 review, the National Academy of Public Administration said MEP is "the only federal program designed specifically to help small manufacturers, and positioned to help create an infrastructure for providing support to these firms as the U.S. economy moves through enormous economic transition.”   

Valley Moving Again. Oh sure, this isn't 2000. While job postings are up, few large companies are hiring in a big way. Plenty of offices remain empty. And aside from such high-flyers as Google, Valley companies have yet to revive such perks as free back rubs and laundry service. ... Moreover, it's breaking out from San Francisco all the way to San Jose. VCs and tech companies are throwing bashes again. Getting a good restaurant table requires a reservation. Hotels are filling up with business travelers. ... Startups are the most bullish these days ... On the corporate front, however, caution is still the byword. Yet some signs of life are starting to show. Thanks to monster second-half profits, Intel has revived a program to buy home PCs for half of its employees. That's 40,000 computers.  [Cliff Edwards, with Jim Kerstetter, Business Week, Dec 1, 03]

Pennsylvania Home Cooking. PA is ponying up up to $20M to  invest in life sciences companies based in Pennsylvania. Birchmere Ventures III LP will raise another $150M if all goes well. 

Nano-Illusion.  Sounds great, as it was meant to sound - $3.7B over four years for nano-technology. The bad news, it's old money re-packaged.   The new 21st Century Nanotechnology Research and Development Act has a road map - take that to the bank to cover payroll - for the ten federal agencies that already had the spending in their tentative budgets. But not only are there no new funds, the funds have to be appropriate each year. [facts from Antonio Regalado, Wall Street Journal, Dec 4, 03] 

Look to Oregon. A recent Oregon law calling for the state to invest in homegrown companies is catching the attention of venture capitalists in Washington.  Because many venture-capital firms in this state frequently invest some of their money in Oregon, chances are that a local firm will get some of the $100 million the Oregon Public Employees Retirement System is to invest by 2008. Oregon doesn't likely have venture-capital firms large or experienced enough to handle the money alone. ...  The law is expected to add 15,000 jobs and $3.9 billion in revenue from startup companies by 2008, Mathews said. [Tricia Duryee, Seattle Times, Dec 4]

Got a commercialization plan and strategy. Visualize how many ways it can go wrong or in some strange direction. Read Michael Crichton's Prey in which nano-robots take control of their own lives.  Sure it's fiction, just like a lot of your plan. 

Looked Good in R&D.  Raytheon Co. says its NightDriver infrared system can spot a pedestrian on a darkened road up to a quarter-mile ahead, more than four times the distance of standard auto headlights. The question is, can it pick out a willing buyer? Sales are dwindling from a four-year-old arrangement Raytheon struck with General Motors Corp. to install infrared sensors on Cadillacs ...Now Raytheon believes it has a better customer base in its sights: owners of Hummers, the hulking SUVs derived from the military Humvee. These people tend to be younger than Cadillac owners, wealthier, and drawn to gizmos -- "early adopters," in marketing-speak.... . In 1999 Raytheon began equipping some high-end Cadillac DeVille models with infrared systems as a $2,250 option.  .... GM says the average Hummer owner makes more than $200,000 a year and often spends tens of thousands of dollars on extras. [Ross Kerber, Boston Globe, Nov 17, 03]  Warning: Commercialization stories that depend on consumer acceptance are usually fantasy. It's a lot more than economics. Despite hype to the contrary, the tech spending environment remains weak. Mr. [Sanford Bernstein's Toni] Sacconaghi estimates revenue for all tech companies will be up 6% this year. Strip out the currency effects, though, and the top line is barely up a surprising 1% to 1.5%.  [J Eisinger, Wall Street Journal, Nov 19, 03]


When in Doubt, Re-organize.  FAA will move its R&D closer to the flight line by re-distributing the function to the operating divisions which are being re-organized by the new agency head. The usual rationale by a politico:  to simplify the old-line FAA bureaucracy and dismiss managers who fail to perform. [Don Phillips, Washington Post, Nov 19]  SBIR hopefuls (yes, FAA has SBIR) should look for even more applied ("relevant" in bureauspeak) work and less tech breakthrough nurturing in a climate where "customers" hold all the money. Responding to customers' "needs" rewards short focus projects at the expense of disruptive change. 

Massachusetts Drops Rank in Tech Jobs.  The Boston Globe (Robert Weisman, Nov 19) reports that Mass lost 13% (40K, and the largest decline rate) of its tech jobs in 2002 and thus fell behind the Suntan State which lost only 5%.


Coffee capital told to wake up   .... Two venture capitalists — one from Seattle and another from Silicon Valley — had some frank advice for the local technology community... it must de-emphasize its reliance on Microsoft and Boeing and help the region become a magnet for new companies ... Dan Rosen,  chairman of the Seattle Alliance of Angels, cautioned entrepreneurs to focus only on breakthrough technologies vs. betting five years of their lives on tech of incremental importance. [technology staff, Seattle Times, Nov 17]  The government could take some of that advice also IFF it wants innovation growth to power America's future. The mission agencies (DOD and NASA control a huge majority of SBIR money) could pay much more attention to new disruptive technology and a lot less to filling its current knowledge holes with hobby companies. But until Congress demands ROI-style accountability, the agencies have NO INCENTIVE to put  the nation's future ahead of their present. 

Homeland Security SBIR.  DHS will have a Phase 1 SBIR collection ending December 15 for a few topics, some wanting new stuff and some just wanting to study the problem. The solicitation is more  or less copied from DOD even including a Fast Track yet to be defined. How much money on the table? Not mentioned, but there are only eight topics and unless it adopts the old SDIO method of a few broad topics, there won't be much money passed out.  What are the real criteria? No one knows, probably not even DHS itself. Commercialization attitude? The words say: GOVERNMENT TRANSITION OF THE PROPOSED EFFORT IS VERY IMPORTANT. THE  SMALL BUSINESS SHOULD INCLUDE THEIR TRANSITION VISION IN THEIR  COMMERCIALIZATION STRATEGY. THE SMALL BUSINESS MUST UNDERSTAND THE END USE OF THEIR EFFORT AND THE END USER. Believe what you will about government's dedication to commercialization. The so-called help desk for ALL answers will open Nov 19; unlike DOD, the topic authors are secret unless you're an insider.  

Does SBIR create jobs as its advocates claim?  No more than the same dollar otherwise spent at Lockheed-Martin. SBIR is simply diverted from large companies to small ones with no apparent gain except a political one. The SBIR community has never made a compelling economic case that the diversion produced any gain to the US economy nor to the agencies who have to divert money to SBIR. It's pure politics based on unproved claims of value-added. 

Superconducting Pork.  The New York Senators proudly announced they had earmarked $1.7M of DOD money to fund HYPRES for follow-on work after SBIR Phase 3 on a digital radio frequency unit for defense wireless.   Senator Schumer said    "With the top-of-the-line communications technology that HYPRES will create, we'll be able to kill two birds with one stone: give the local economy a boost, and play a critical role in our nation's security. We fought tooth and nail for the money, and I'm happy to say it's on the way, and couldn't come at a better time."   Having trouble getting an agency to continue funding your new technology after Phase 2? Force-feed the money into the agency with an earmark. It just takes pure politicking. More and more companies are doing it, as if the politicking that keeps SBIR going isn't blatant enough. HYPRES has had what many companies would call its fair share of SBIR over the past two decades (at least 42 Phase 2s and 86 Phase 1s) as it keeps grinding away at apparently uneconomic superconducting technology. 

Ohio Rejects Tech Handouts. $500 bonds to fund technology-based economic development project?  No, said Ohio voters. No corporate welfare and feel good spending as part of  the unpopular governor's  $1.6B Third Frontier project. Political analysts opined that the measure went down because it smelled of corporate welfare (heaven forbid anyone should say the same for SBIR), a 150-year old ban on government direct investment in private companies, and not buying off the interests who would get nothing (like the farmers). [SSTI, Nov 7]. 

BrainChild Maryland will try to profit from tech transfer, the billionth or so such dream of turning new technology into spin-out companies and licensing deals. The first million comes from Maryland taxpayers (who probably have a lot of suspicion that the only beneficiaries will be the people drawing a salary to spend the money) on the premise that Maryland is rich with technology resources and, on a per capita basis, receives more federal funding for research and development than any other state in the nation,” DBED Secretary Aris Melissaratos .  Got a hot prospect?  Jessica Tiller at 410-727-6855 

My fear is not that government will fail to pick winners. Government bureaucrats can, and often do, select good technologies. What government is incapable of doing is abandoning bad technologies. The failure rate in new technology businesses is very high. Markets discard unsuccessful innovations relatively quickly and cleanly. Stock market speculation takes place on the investor's nickel, and bubbles come to an end sooner or later. In contrast, once a government program gets started, it is almost impossible to stop, and its fuel of tax dollars never runs out. Everyone with a business idea would love to finance it with Other People's Money, and a government bureaucrat with a budget to spend on technology is like an entrepreneur with an endless supply of venture capital.   [Arnold Kling, Tech Central Station, Nov 13]

Dig into your attic. A new agency SBIR is about to appear. Homeland Security will put out a solicitation on Nov 14, which should result in every old idea getting dusted off and floated again to the new kid. No, with no history, no one knows what kind of approach the DHS bureau will take toward SBIR. But as with most agencies, look beyond the words in the solicitation or the agency mouthpieces to judge the real criteria. 

NIST SBIR is on the street. This is one agency that wants real commercialization and is even willing to engage in corporate welfare to get it. Only relatively mature or tiny scale projects need apply because Phase 2 will be only $300K. Unless of course NIST wants to play the continuous project game that the mission agencies play to get around the target amount limits of the SBIR law. The federal officials will have no trouble funding their favorites if they choose since there are no SBIR investment police to collar them for wasting SBIR money. Who gets the 10 or so annual Phase 2s?  The usual suspects are well represented. 

And what about ROI for the agencies such as NASA and NSF? Do they see commercialization activity from the "SBIR Mills" that churn out proposals weekly? The real welfare in SBIR is given to these sorry excuses for corporations. I have reviewed proposals for two agencies, and have seen firms with 150 Phase 1 awards and 40 Phase 2 awards, that have generated $130,000 in total revenue. THAT'S OVER $60,000,000 IN SBIR AWARDS TO ONE COMPANY, THAT GENERATED A $130,000 RETURN, FOR YOU, THE TAXPAYER.  So says one of the minority YES votes for allowing VC funded companies to be eligible for SBIR. How people vote on such a question goes as the adage, "Where you stand depends on where you sit."  The SBIR advocates want a guaranteed cut of federal R&D for small companies regardless of ROI; the SBIR winning companies don't want competition from real money; some of the VCs would like the supplement of SBIR for their companies; the government should want an ROI that justifies the investment (although "government" is also divided into two camps neither of which cares much about ROI - the elected politicians want to please the small business constituency while the bureaucrats want to protect their budgets and will do whatever they have to to make Congress happy). Vote YOUR opinion!

A Few More Improvements.  One reason SBIR has no economic story to tell is that the agencies spend most of their SBIR money on nice safe projects with predictable results of more knowledge by the agency about something it is already doing. That is usually called defensive research. One agency, for example, recently funded a Phase 1 to update yet another math model of a physical system:  A relatively new failure theory for composites, the Strain Invariant Failure Theory (SIFT), is proving to be far more accurate at predicting failure. SIFT in conjunction with a robust finite element analysis (FEA) tool offer an efficient method aimed at streamlining the design certification process for laminated composite structures. Phase I activities address the necessary enhancements to StressCheck®, a parametric p-version FEA tool, to facilitate the use of SIFT methodology during post-processing. Enhancements include: 1) Add a General Shell element and a Transition element that will enable the connection of a shell to a 3D solid element. 2) Add laminated orthotropic material properties that follow the general curvature of a shell or solid element. 3) Add a Contact element and 3D Fastener element with clamp-up simulation.  Innovation? Well I suppose it has never been done, and neither have I ever painted a wall purple and chartreuse. Downstream economic impact. SBIR requires the company to pretend: Successful demonstration of the proposed enhancements in combination with SIFT will provide analysts with a tool enabling the design certification of composite structure at a significantly reduced cost compared to certification methods in place to date.  Any wonder the companies who get funded for such stuff object to opening SBIR to VC backed companies? 

Did you know that 80%of the country's basic scientific research - the foundation for gee-whiz biotechnology and medical device development - is performed in federally funded labs? The federal government pours $23B into federal labs like the National Institutes of Health and National Institutes of Environmental Health Sciences. Washington funnels another $18B to university research facilities. [a message brought to you by Joe Allen, director of the NTTC,  and LARTA advertising for its Project T2: A Technology Transfer Conference coming Nov 13]. 

Pull Up That Lifeboat Ladder! The people who sail in the SBIR lifeboat  vote overwhelmingly against letting in any more people. Especially firms backed by VC money that the government is likely to ignore anyway. About 40 people have voted in the SBIR Gateway informal poll meant to help Congress decide to ignore the arguments of the VCs and listen to the present beneficiaries. The arguments against the change ignore any larger meaning of SBIR (which is reasonable for beneficiaries but not for policy wonks). Got a useful view? Vote or comment yourself.

The Scariest CustomerHow juicy - a $300B buyer that cannot be arbitrary in picking its vendors.  But Matthew Swibel and Janet Novack (Forbes, Nov 10) tell a horror story of a small company that sold to the fed and would up acquitted by a jury in a criminal trial. The company used surplus materials, apparently of acceptable quality, without doing a "mother may I" required of a buried materials clause. Before this whole crisis Aerometals didn't even have a government contracts lawyer, let alone one from a big firm who bills at $500 an hour. "What Aerometals did was manufacture parts well," says Metzger. "But it didn't realize how easy it is to get yourself in trouble with the government in arcane areas and how difficult and expensive it is to get yourself out of trouble."  The moral" don't sell the government goods and services without a good procurement lawyer. R&D, including SBIR, though is more forgiving since you are only promising to deliver best efforts. 

Marines land first. The Navy has released a partial list of its Phase 1 winners from the summer solicitation. Only the Marines have winners for all their topics. And, guess what, the list sounds like the usual list of suspects.  The list shows that the debate over whether VC investors should qualify for SBIR awards is moot because the Marines, like the other mission agencies, pay no obvious attention to the kind of economic criteria that would interest VCs. Consistent with the idea that mission agencies render economic questions moot, all the Marine projects sound like incremental engineering. 

Fast Track is back in the news.  After a term of hiding the facts, DOD has once again listed its Fast Track Phase 2 awards. Fast Track favors Phase 2s with third party CASH by matching the cash from some formula which changes from time-to-time, by markedly higher award probability, and by prompter contract negotiation. Ft'ers also do not have to compete for an invitation to submit a proposal.  In 2002 there were 41 FT awards out of a 660 Phase 2 total awards. In 15 of the awards, the cash came from other federal programs. 

DOD so wants more SBIR ideas more often that it is adding a third annual solicitation. The new 2004 schedule has solicitations closing June 17 and August 12. STTR will still be once a year. Eventually, maybe, a federal agency can have a nearly continuous solicitation for really new ideas (regardless of what it does for the ordinary stuff that dominates SBIR). Actually, that would bring it back to the standard R&D program's Broad Agency Announcement. Of course the agency would have to have a way to shut out the umpteenth variation of the same old idea from companies who have more persistence than imagination. One idea is to permit monthly submissions on broad topics from companies who have never won an SBIR before. 

The establishment of SBIR beneficiaries is solidly opposing a proposed opening of SBIR to VC firms.  VC and Biotech organizations propose that the rule that SBIR firms must be owned by individuals be expanded to include VC enterprises. See the debate unfold and join in.  The old rule of government programs is that any change is stoutly resisted even if, and perhaps especially if, the program has no demonstrable success. SBIR's only success is steering government contracts to a politically preferred interest group.  The opponents claim the change would admit "corporate welfare" (as if what happens now is not corporate welfare). Ah well, waste, fraud, and abuse always means someone else's program. 

Our work force has not suddenly become more educated. Few workers are churning out 9% more work at annual rates than they did three months ago. Instead, we are dumping U.S. workers and replacing them with services from abroad. Computer help phone lines are being staffed by workers in Ireland and India. Computer programming is being written in Asia and delivered to U.S. technology officers over the Internet.  High-priced American programmers are being dismissed faster than they were being sought three years ago. More than 120,000 programming jobs have disappeared in the past year. Even the previously coveted system design computer jobs have fallen by more than 30,000 this year. [DONALD RATAJCZAK, Atlanta Journal-Constitution, Oct 26, 03]  Can the government make any contribution beyond political posturing? Maybe.  If America is to stay the technology leader it will need educated staff for entrepreneurial enterprises. Better education for a globally technical world will have to come from parents, not from more money. Enterprise equally needs not more money, especially government money, but more risk taking for new ideas. Unfortunately, government is as ill-equipped for enterprise nurturing as IBM or General Motors. Its track record on SBIR, for example, shows no noticeable economic return. If SBIR is ever to be an enterpreneuring program, government will have to wholly revise its attitude and fund more risk in companies ready and able to attract venture finance to take the next step. 

"I'm not saying Arizona is behind, but you have to run to keep up," said Bob Goforth of site selection consulting firm Leak-Goforth .  Arizona's  second annual Semiconductor Forum emerged with some hints for the state to keep its semiconductor industry conducting. Small companies or university researchers developing new technologies could use a pre-production center [nice idea; who will pay?] .... Educators and industry need to work more closely [a perennial academic recommendation which costs nothing] in developing a workforce that can transition products from a lab to a wafer-fabrication plant. ...  research and development at Arizona's universities is too well kept a secret inside and outside the state.      establishing Arizona as a distribution gateway to Asia   [Jane Larsen, The Arizona Republic, Oct. 23, 03]  It might help if AZ could get more SBIR help IFF AZ could convince the federal agencies to fund companies and technologies with future market prospects instead of just short-run R&D service contracts. AZ might also do some in-state introspection and ask companies like MER (Tucson) how many permanent post-SBIR jobs have resulted from its piles of SBIR money.  

Is running the company you founded and then, after five years, being fired by your investors a sign of failure? Or is it a sign that for half a decade you succeeded? ... Mr. Langeler, a former start-up entrepreneur himself, asks founders seeking venture money: "Do you want to be the boss, or do you want to be rich?" ... Post-bubble entrepreneurs can expect their management credentials to be viewed more skeptically by venture investors and can anticipate being yanked from the CEO's chair sooner, rather than later, should trouble arise. ... "Venture capitalists have to be optimists," he says, since they're investing in firms that often don't yet have a commercial product or any revenue. Founders, betting all their time on a start-up, are optimists, too. "And when you get a bunch of optimists in the room, it takes a while for reality to set in."  [Jeff Bailey, Wall Street Journal, Oct 21, 03]   One reason SBIR is an economic failure is that the founders who want to keep control convince the politicians that control is good and buy-out is bad. Oh, the sob stories of founders losing control to vulture capitalists! The result is that there is no pressure on government to show economic success that comes when the good ideas with the bad founders are liberated by the profit motive.  And since the federal agencies have no economic interest in economic success, they are happy to devote SBIR money to their projects that only a government could love. 

Next time you're tempted to twaddle about productivity benefits of your amazing new technology to a government that doesn't care anyway, at least make a decent argument like you understand productivity.  Politicians want contradictory goals of more of both productivity and jobs. They usually accept the myth that info tech created the productivity gains of the 90s. After two decades of 1.4% average annual gain, it rose to 2.4% in 1995-1999, 2.9% in 2000, only 1.1% in 2001 and an amazing 4.8% in 2002 while technology goods rose from 2% to 12% of GDP in the 90s. But two thirds of the productivity gains were in just six industries and only three of those (semiconductors, computer assembly, and telecommunications) were technology creating industries. [facts from Diana Farrell, Harvard Business Review, Oct 03] Even the Secretary of the Treasury fumbles the productivity issue as he (foolishly) predicts scenarios desired by the White House re-election squad that get more job growth from a decline in productivity growth. [J Eisinger, Wall Street Journal, Oct 21] And ``Real manufacturing output has risen 77% even though the number of manufacturing workers has fallen 22% since the 1979 peak,'' [Steve Wieting, senior economist at Citigroup} says. Similarly, real farm output rose 96% since 1979 with 31% fewer agricultural workers. [Caroline Baum, Bloomberg News, Oct 14]  So, if you don't want to sound like just another babbling politician, make a decent argument with some hard facts and realistic analysis. For the mission agency SBIRs, you're probably better off talking about the weather anyway.  

For small companies that supply the defense giants, these should be boom times. Pentagon spending on new weapons is up, and military officials are eager to expand their pool of traditional suppliers with innovative entrepreneurs.... But for small defense contractors, the price of vying for that work is enormous personal stress and frequent brushes with financial disaster. One reason is growing competition. As a global downturn in air travel depresses demand for new commercial aircraft, suppliers fishing for defense work offer cut-rate prices just to keep their factories open. ... The industry "goes like this," says Mr. Hoffman [CEO of Summit Design & Engineering Co, Helena MT], making a wave motion with his hand. "You have a decent year and then it goes in the toilet. If things go downhill, we've lost everything."   [A M Squeo, Wall Street Journal, Oct 22]

For a while, nanotech will have to rely on government funding, says VC Steve Jurvetson, because the profit motive will not energize the VCs. "Nanotech is the next great technology wave," Jurvetson said.  ...  but because most nanotechnology research won't produce a marketable product for at least three to five years or longer. One notable exception is medicine, he said, where there are several promising nano-treatments for illnesses such as cancer that are nearing trials in humans.. [Eric Berger, Houston Chronicle, Oct 15]

What does that empty plastic juice bottle on your desk have to do with a more efficient, less expensive fuel cell?   Oxford Performance Materials, developer of high-performance thermoplastic polymers, spawned from a company that started out recycling plastic scrap materials, recently was awarded a $250K contract from the Department of Energy’s Inventions and Innovations program to expand its high-temperature fuel cell membrane research and development activity.  OPM’s research applies to proton exchange membrane (PEM) fuel cells, which use a thin plastic film to separate hydrogen ions from electrons and whole atoms, and more specifically developing a replacement for Nafion, the perflourinated polymer used in most PEM systems now.  .... The initial R&D was funded by a pair of Yankee Ingenuity Grants totaling $600K from Connecticut Innovations, the state’s top investor in and supporter of high technology and technological innovation.  [Jay Rizoli, Mass High Tech, Oct 6]  More government money into PEM technology after decades of small contracts, especially SBIR to companies like Lynntech  (College Station, TX) and Giner (Waltham, MA).

Don't cut you, don't cut me, cut that guy behind the tree. The porkers are lining up to save MEP from the free-marketer administration's efforts to gut it. W won't do any better at it than his father. To woo conservatives, W proposes cutting MEP after which Congress re-instates it. After all, how can Congress cut manufacturing help programs while moaning about the loss of manufacturing jobs?  "I'm rather stunned that this program was attacked," says Lawrence Rhoades, president and chief executive officer of Extrude Hone Corp. in Pittsburgh, who also serves on a panel studying the program at the National Academy of Public Administration. "It offers a good return on taxpayer investment." quotes Timothy Aeppel (Wall Street Journal, Oct 8). Whether it's a "good return on taxpayer investment" depends on your view of what taxpayers should be investing in at all. The beneficiaries and their Congress reps can see endless virtue in such "investment". Just like the phantom good return from SBIR. Where's the money to come from? The same place where all the other spending comes from - lower tax collections offset by liberal borrowing. 

Ask Not What Your State Can Do For You Less than before. Conservative estimates project that states have already axed between $20 and $40 B from their budgets, ...   Across the nation, state cuts include technology spending - on their own IT infrastructures and in financing innovations in the public and private sectors. For this reason, tech industry observers have stopped asking, "How low can they go?" Instead, they're asking new, tough questions:  · Who's going to get the biggest slices of the steadily shrinking new economy pie? · Will the lack of funds spur innovation or diminish it?  · What will the funding crisis mean for the future of state-supported technology development?  [Margot Carmichael Lester, LARTA, Sep 2, 03]

The big guy is prowling the street with lots of money to hand out. DOD SBIR topics are public  along with the technical point of contact who will answer certain questions about the topic.  Ask them sensible questions if you want a sensible answer. Your prime goal should be to estimate how competitive your hypothetical proposal might be. You want to know if they are keenly interested in your proposition which you can state in 1-2 sentences. If they don't applaud right out loud, you're probably NOT competitive and you're wasting your money and their time proposing it.  A lukewarm answer means either you babbled your idea or it is NOT as exciting as you think. The question period will last ONLY through November. Remember that you must talk to the topic POC with technical questions. Don't waste you time and money going to the National Conference in Cleveland 27-30 October where you will only find the SBIR bureaucrats who can tell you where to send the proposal and how to count to 25 pages but NO TECHNICAL guidance. 

Eye Wash or Incentive?.  Kansas has a plan for econ development including Rural Development Tax Credits which would create (in the politicians' mind)  regional pools of venture capital to assist entrepreneurs and fledgling businesses in rural areas and would be issued to regional foundations. The foundations could then sell the credits to raise money for their regional venture capital pools. Just one problem: why would an ROI-driven VC invest in rural enterprises? 

MPI Needs a Shelter.  Minnesota decided to economize (what state hasn't) by wiping its Minnesota Project Innovation from its funding menu. The SBIR arm now needs a supporter to continue its mission of helping state companies tap the federal SBIR spigot. MPI's Procurement Technical Assistance Center, which claims to have helped more than 1,200 companies last year found its sugar daddy in the Metropolitan Economic Development Association (MEDA). [story Minneapolis Star Tribune, Sep 29]  Why might the legislature gut a program that brings in federal dollars? Maybe because the federal dollars have little staying power - one shot medicine with little downstream economic activity that produces tax revenue or self-supporting jobs. While that result is not Minnesota's fault, it does contribute to a picture of a mere jobs program with the only beneficiary being the federal agencies who grab the technology.  

Increasing global competition and increased efforts in the 1990s toward greater efficiency in government has boosted pressure on federal agencies to conduct economic impact assessments, according to the report. These pressures are relatively new and the majority of agencies have not obtained the internal means to select proper metrics, data sources and analytical methods. Agencies also have struggled in selecting contractors outside of the agency with the skills necessary to perform such assessments, the report argues. As a result, the need for proper impact assessment is often lost, as most R&D agencies are managed by technically trained individuals unfamiliar with tools for economic assessment and uncomfortable using and interpreting data produced by a field of study in which they are not trained.  [SSTI Weekly Digest, Sep 26,03] The subject is NIST's Greg Tassey's report on the economics of government R&D. He argues here that government is too dumb (not enough economists in R&D) to evaluate R&D programs. If SBIR evaluation were the standard, he would be obviously right, but than again the real reason for non-evaluation is the lack of economists (they can be outsourced); it is the political unwillingness to do so. .

Political Sense and Economic Nonsense.  NIH congratulated itself after a comprehensive evaluation of its SBIR by surveying (yes, another survey of beneficiaries) companies with Phase IIs 1992- 2001  to determine if the goals of the program were being met.  The usual overwhelming majority claimed the usual benefits.  In the usual outburst of enthusiasm, 98% said that SBIR support had been or will be “very important” or “important” in the research and development of the product, process, or service developed under the funded project. Imagine that - people who asked for money and got think it was a good program. It even bragged that 52% of Phase 2 winners got more SBIR. Then it claims superior evaluation methods: NIH now has the basis for a systematic approach to collecting and analyzing NIH SBIR Program outcomes. The one economic measure was that $551M of Phase 2 money resulted in $821M of sales some of which may have been more SBIR. A real economist like Josh Lerner would scoff at both the method and the conclusions.  What's wrong? The evaluation has no comparative economic measures, no control group, no independent validation of the data, no measures of innovation, no subtraction of SBIR-funded employment from employment growth, no concept of ROI. But it does have a lot of numbers in multi-color tables. It also has a survivor bias (as do all small business surveys) and thus the money for Phase 2s in companies that failed is not included. Although it reports 20 companies going public, it make no attempt to grab that obvious economic measure (as did BMDO recently in calculating an ROI). The report's bottom line: we passed out a lot of money to people who asked for it and they report that they did some good with it.  No matter, Congress will love it and NIH will NOT be called to task because the agencies are required by politics to pretend that SBIR is a great success even though they would sack it in a heartbeat if they could. The so-called free market Bush administration will keep its mouth shut about market distortion and industrial policy; it's small potatoes, doesn't require appropriations, and doesn't get in the way of tax breaks for wealthy individuals and corporations.  Find the report.

SBA's Office of Advocacy pumped out another report to claim that small business drives the nation’s economy, claiming that over 99% of all American businesses are small and create 75% of net new jobs, and employ over half of the nation’s non-farm private employees. Office of Advocacy is the driver and defender of SBIR and other programs that try to intervene in normal business to protect and advance small business. SBIR is so important to SBA that SBA tries to block any economic evaluation and advocates that EVERY SBIR PROPOSAL be funded that passes technical muster. Find Advocacy's list of reports.

Grow Wisconsin, Grow Wisconsin! The governor has a plan; don't they all when elections are nearing? 1. A new Manufacturing Competitiveness Program. $10M  for grants to 50 manufacturers to improve their productivity through training Does he know that productivity raises profits and cuts jobs? 2. A $300 VC fund for  seed and early-stage companies. Put state funds at risk and have a repeat of the 1990s bubble? Why would state investment be managed better than strictly private investment?  Other states have tried it and lost interest when the payback period goes way past the next election.  3. A new program to commercialize research.  $5M for technical assistance, matching grants and bridge grants that will help researchers win federal funding and turn scientific discoveries into jobs. Noble goal unfettered by experience. Getting federal funding is NOT commercialization and may actually push the R&D in the wrong direction.  4. Greater investment in job training. $1.5M is small money for something that might actually help. 5. Accelerated broadband deployment. A useful tool for smart companies but also something the private sector can do. [facts from SSTI, Sep 19]

Is it a good idea for Massachusetts to spend $125M of taxpayer money to "create more jobs"? Or Nebraska or New Mexico? Would it work in theory, or in practice? Or is it merely a handout to special interests who claim expertise in economic development? Can a political entity create jobs that last longer than the money handed out? What would those jobs do? Who would be customer with the demand? If there is no new demand, then the jobs must come at some other place's expense. Isn't it mere sub-optimizing for a state of the United States to seek competitive advantage over neighboring states? If we are a united nation, we would let economics dictate where jobs will be done and the workers would move to those jobs. That was the intent of the free internal trade clause of the Constitution. Oh, don't worry, such larger considerations won't bother state politicians who need to be seen "doing something". They follow the old Army adage, "Do something, even if it's wrong." 

NIH posted sample annotated Phase 1 and Phase II SBIR proposals of Elitra Pharmaceuticals. .Good move, Joanne. Such advice MAY improve the chances of a proposal winning an award.  Proposers should note, though, that few government technical types pay a lot of attention to how nice a proposal looks. They want to know whether you have a competitive idea and all the eye-candy won't elevate mediocrity. They are generally willing, especially for Phase 1 to overlook amateurish looking proposals from what they view as educable companies. Don't agonize over presentation; agonize over clarity.  

Nolan Bushnell. He's the über-entrepreneur who founded video-game pioneer Atari and Chuck E. Cheese's Pizza Time Theater in the 1970s, plus nearly 20 other startups since. "Venture capitalists are people looking for innovation -- until they see it," he thunders. "If you have an innovative idea, your chance of getting funding is virtually zero." Cranky as he is, Bushnell has a point. Great ideas often look trivial to most people.  [Business Week, Aug 25] How about government then as a source of start-up capital for great new ideas?  Little chance. Risk takers don't inhabit the halls of government. Even alleged start-up helpers,, like SBIR, are run by the risk-averse  bureaucrats who would rather fund a 99% chance of a 1% improvement than a 1% chance of 10000% improvement. Maybe DARPA has some entrepreneurial spirit but even DARPA gets whacked for visionary thinking. Witness the furor over the terror futures market scheme, an innovation that has actually had some real market testing. BMDO once had as much spirit as is allowed in government before the crats power-grabbed that SBIR. The political SBIR advocates add dousers to any fire with their lobbying for the ordinary stuff as a piece of the money pie for their constituents. 

A Future for Futures? Neoteric Technologies (Huntsville, AL) lost a $750,000 FutureMAP grant, but its vice president, William Adkins, still hopes that the Department of Defense will find use for information markets. His company is involved in a project that will use a market to measure the progress of a Pentagon weapons project. "It'll give evidence whether the project will be on time or whether the program manager is whistling in the dark," says Adkins, who notes that the market could break bad news to officials without whistleblowers having to risk their careers. Adkins has also been working on a market of epidemiologists that he hopes might give early warning of an epidemic, such as a resurgence of SARS. [Science, Aug 8] Neoteric was denied its Phase 2 SBIR as the storm broke over the terrorist futures market. Neotheric got to the party too late; Net Exchange (San Diego, CA) had already won a Phase 2 in 2001 for roughly the same thing, before the politicians realized what was up and was connected to John Poindexter. 

Who Speaks for Tech? For decades, Jack Valenti has represented the movie industry with an unwavering voice. Silicon Valley could learn a thing or two from Hollywood's master lobbyist.  ...  a cross between a Southern snake-oil salesman and the consummate Washington fixer. ... the Valley needs to learn a thing or two, and that Valenti himself has an awful lot to teach it. 1. Define the debate.  2. Extra points for humor. 3. Pucker up for Washington. 4. Check, please. 5. Find the next Jack Valenti.  [John Heilemann, Business 2.0, Sep 03]

Had an SBIR and you're ready to sell something to the government? It's easier than ever. IFF the government wants it. (Don't misinterpret those diplomatic nods as enthusiasm for your gizmo.)  Dave Metzger, authoritative SBIR procurement lawyer lays out some of the rules and rights in a recent briefing at an SBIR conference. Copy provided by the SBIR political arm - SBTC. 

The Twin Cities isn't necessarily the best place to start a new venture, but it's the best place in the country to be if you're operating a small business, according to the October edition of Entrepreneur magazine. And, the magazine says, the business climate for local entrepreneurs is getting better. The Minneapolis-St. Paul area moved into first place from 15th in an annual study of the best cities in which to be an entrepreneur.  [Minneapolis Star Tribune, Sep 17]

Paul Rummell 1920-2003. Paul spent 30 years at Watervliet Arsenal rising to Chief of Benet Lab, the R&D arm of gun making. Watervliet did one big thing really well - it bored a lo-o-ng straight hole in big hunk of the hardest steel. 

States still trying to invent tech industries. A small portion of Florida's pension fund will go toward venture capital investments, according to the Orlando Sentinel. Though not widely publicized, the state's pension fund managers have decided to invest up to $400 million in venture capital funds — barely one-half of 1 percent of Florida's pension ... a $5 million venture capital fund to help Iowa's start-up companies ... Massachusetts Pension Reserves Investment Management Board has decided to commit two percent of its $28 billion in assets for economically targeted investments in economic development and housing projects. Types of investments to be considered include seed funding for industries "overlooked" by private venture capitalists. least $100 million in venture capital investment in Oregon businesses by Jan. 1, 2008.from pension funds  [SSTI, Sep 12]

NASA bought a new cookie cutter and now offers $600K for the few Phase 2 STTRs. 

CalTIP Sacrificed.  Born in the panic of the disappearance of the Cold War, CalTIP went along with the defense conversion fad of the early 1990s as evidenced in the 1993, pre-election, Defense Appropriation. One solution for every committee was more SBIR. And California invented a handout (investment) in companies getting federal money. Now, a decade later, California's financial panic has led to killing the goose to save money in the post-Enron world. CalTIPs defenders cried that it produced $2.27 for each dollar invested. attracted $900M to the state, and eased 134 products into the market. 

Nothing Too Innovative, Please.  After the controversy-shy politicians whapped DARPA over Total Awareness and Terror Futures, Hiawatha Bray [Boston Globe, Aug 4] defends DARPA   Good news for American liberty, say DARPA's critics. Maybe. But it's certainly a defeat for the kind of daring, edge-of-the-precipice attitude that is supposed to motivate the researchers at DARPA. The agency finds itself condemned for doing its job --and not too badly, either. For both of these controversial proposals have considerable merit.  It's always been DARPA's role to pursue ideas ahead of their time. And to be a whipping boy for generals and politicians who want more of yesterday's solutions. 

For a while, SDIO/BMDO had a forward looking posture also. After all, some of the programs came from DARPA. But MDA's SBIR has heeded the DARPA critics and retreated to conventional solutions devised by committees. 

Hoover Republicans Reign.  As the economy struggles, unemployment rates rise to a nine-year high, and manufacturing continues to shed jobs, the Modernization Forum reports that a House Appropriations Subcommittee cut MEP 63%. Maybe they should, or already have, read the history of the Republican Party in the 1920s and early 30s.  Cutting the government handouts, especially to the lower and middle classes of both individuals and businesses, and cutting the progressivity of taxes is still the Holy Grail of the Neo-Con theorists. On the other hand, such programs have little economic evidence, other than benefits to the recipients, that they do any net economic good. 

Unlike the ill-fated space shuttle Columbia, however, Helios was exactly the sort of programme that NASA should be funding—an unmanned craft that is pushing technology to its limits.  ...  A single UAV could provide connections of at least five gigabits per second to around 200,000 subscribers, and a rotating fleet of them would provide continuous coverage.  [The Economist, Jul 5] 

Familiar Homeland Security.  Pres candidate Lieberman calls for concrete measures to stem the flight of high-tech manufacturing to countries that have well-funded national programs designed to woo away American industry and American-trained talent. The emotional hook in the report is an outline of what the Connecticut Democrat sees as the clear and present danger represented by dependence upon "unreliable" foreign suppliers for the cutting edge technology that supports our military superiority. In a post-911, post-Iraq America, in which the nation is as concerned about reigning in military spending as a hungry diabetic in a candy shop is about cutting down on sugar, the Senator's military angle is shrewdly chosen. But is the Senator's wake-up call prescient or merely political? Is it based on a xenophobic paranoia that rails against the way business is done in the modern economically cosmopolitan world, or conversely, does the warning about the danger of leaving the door open come after the cyber-cow has already left the virtual barn?  [LARTA, Jul 1] 

Tactical Tutor.  You’re a tank commander in the U.S. Army. As your battalion approaches a bridge, you see that it’s in enemy hands. Do you retreat, engage the enemy, or try to stop the flow of enemy troops crossing the river? That’s a scenario posed by training software being developed by Stottler Henke. The software mimics a human tutor, examining the decisions a trainee makes on a simulated battlefield. Unlike existing training programs, the system uses artificial intelligence to interact with the trainee in dialogues where there isn’t one correct course of action. It also adapts to the user’s individual strengths and weaknesses, coming up with questions based on his or her battle plan. Currently, the interface is a keyboard and screen with maps and text, but programmers may design a new speech interface. Initial versions of the software will be ready for use by the army within a year, says Eric Domeshek, the project’s manager. Commercial applications abound, he adds—such as e-tutors for teaching marketing strategy in business schools.  [MIT Tech review, J/A 03]  Stottler-Henke loves SBIR awards and the Navy seems to love Stottler-Henke. 

Once again, the sound of grinding is soon to be heard in the many companies spending Energy's Phase 1 SBIR money to keep working on their favorite hobbies. Energy, like Defense, honors experience and worries little that money spent on experience yields little startlingly new or disruptive. These experienced hands have been spending SBIR money for two decades now and still easily qualify for a handout despite repeated proof that their ideas are so uneconomical that only a government could love them. Read the list of old warriors with multiple contracts: Radiation Monitoring Devices, Aerodyne Research, Southwest Sciences, Eltron Research, Lynntech, ADA Technologies, Ultramet, MER Corporation, Precision Combustion, TDA Research, Foster-Miller, Physical Optics, Ceramatec, Supercon. Such companies form the core of Techmology Coalitions to argue in a political forum that not only should their work be preferentially funded, the results should not be evaluated by any economic criteria.  "Trust small business" is their political appeal in friendly Congressional committees who dare not call the bluff of them and their cohorts in the federal agencies who systematically decline to fund either disruptive technology or.economically fruitful infant technology. Can we find a way to hold agencies accountable for the ideas they reject even though they escape accountability for the ideas they fund? If you are one of the Phase 1 winners, remember to emphasize the scientific merit and gloss over the reasons why only government will "invest" in it. And you might consider joining one or more of those technology coalitions to abuse the economics of innovation by small enterprises. You need all the political support you can rouse to keep the SBIR machine running. 

Government Want Take Your Data Rights to Get a Phase III?  SBA would prevent such pressure in a proposed clause in the new STTR Policy Directive. SBA proposes a provision that agencies can not condition a Phase III award on a concern giving up its STTR data rights. Likewise, the proposed Policy Directive clarifies that STTR data rights can not be negotiated or diminished by the funding agency. Further, the proposed Policy Directive prohibits the negotiation for STTR data rights before awarding an STTR funding agreement. SBA proposes that negotiations with the STTR awardee regarding intellectual property rights must be via a separate agreement, made without pressure or coercion by the agency or any other party.

Texas Downsizes. No, not its bluster nor its geography, only its tech development efforts. The Texas Department of Economic Development (TDED) evaporates, to be replaced by an Economic Development and Tourism Office within the Governor's Office with 20-some% fewer employees. Sounds like a Dubya/Nixon move to have White House control of everything. 

Another Fuzzy Evaluation.  Although business incubators are beloved of state governments, particularly if privately funded, there's not much evidence that they do much good except for the politicians. Now the federal Department of Commerce has made a fluffy study and found that the top 17 of 79 incubators studied These top programs offered a full array of incubator services and had a strong relationship with either a research-intensive university or medical research institution, or were located in a metropolitan area with a high concentration of technology-based companies and associated business support firms, according to the study.

Santa Clara County has lost one of every six jobs, the worst job loss for a region of its size in the past 40 years -- even surpassing the infamous decline of the auto industry in Detroit or the near bankruptcy and eight-year slump in New York City.  And based on the experiences of other major regional downturns, Silicon Valley can't expect to return to its previous peak of employment for the rest of this decade. .... For 2003, expects a 2 percent contraction in employment in the valley, followed by a 2 percent increase next year. In 10 years, Santa Clara county is expected to have only 1.01 million jobs -- 50,000 fewer than at the peak of the Internet boom.  What makes this forecast uncertain is that technology has a history of big surprises, such as the Internet. ``You can't forecast technological breakthroughs,'' says Cochrane.  [Mercury News, Jun 21,03]

Looking for Your First NASA Phase 2?  Proposals due now and review starts in late July.For reasons of bureaucratic neatness, you have to submit your proposal on a strict schedule tied to the start of your Phase 1 but NASA is free to let your proposal sit on a pile unread until its review start date.  Walk up to the plate with about two strikes against you. Taken by the sound of NASA's commercialization speeches? Forget them! NASA loves solid companies making safe incremental advances. Study the list of winners and their projects year after year and see a repeating list of favorites with technologies they have been grinding on, albeit with the titles slightly changed from year to year.  Some of them go back to the founding of SBIR in the early 80s.They and NASA have a solid relationship and neither will appreciate your disrupting that deal with new stuff. And after every disaster, like Challenger and Columbia, the call for relaibility and well tested stuff forces NASA deeper into a defensive crouch. What can you do?  Do what the veterans do - make friends in the NASA centers where the decisions are made. 

Better Days for SB Are Coming. Talk It Up.   Small Business Economic Indicators for 2002 figures indicate that the economy is ready to pick up steam. It notes that small businesses are well placed to take advantage of an economic upturn. Business bankruptcies continued their downward trend, non farm proprietors' income increased by 4.9 percent, and corporate profits increased by over 7 percent, giving owners the financial ability to expand their firms. "Small businesses are ready to lead America's economic recovery," said Thomas M. Sullivan, [SBA's] Chief Counsel for Advocacy. [Michigan Technology News, Jun 16]

The Re-Elect Me campaign takes its flag waving and buzzword backdrops to a small Minnesota company, Micro Control, that tests chips (electronic, not potato).  its 73-year-old founder and president, Harold Hamilton, will be hosts to President Bush on Thursday when he brings his economic recovery plans to the Twin Cities. Hamilton, a fiscally conservative entrepreneur and frequent Republican Party contributor, has seen his company struggle through a three-year downturn in high-tech industry and sees Bush's tax plan as a way to grow again. [David Phelps and Dane Smith, Minneapolis Star Tribune, Jun 18]  Micro has not resorted to SBIR for any of its developments which helps prove that there is much high tech small business outside SBIR. 

The Army's next-generation soldier uniform took another step forward yesterday as Foster-Miller and General Dynamics announced their share of a major military development contract. Both enterprises will help develop the advanced uniform for ground troops under the Army's Objective Force Warrior program. The uniforms are scheduled to be issued to troops by 2010....  Foster-Miller stands to take in $13 million in revenue over two years and expects to add 15 to 20 engineers to its work force of 350.   [Ross Kerber, Boston Globe, 6/18/2003]  Foster-Miller is the national champ for SBIR money collected of which it has had 34 Army Phase 2s (so far) from 96 Phase 1s, all for what sound like modest engineering advances that wouldn't scare the Army.  None of the Phase 2s was directly for uniform components. 

Company X floated an unsolicited proposal (a nearly hopeless cause) for a technology innovation to Agency A which summarily rejected it. Many months later, X says, the idea showed up as an SBIR topic which was won by Company Y, an experienced SBIR winner. Did the agency diddle X by appropriating the idea and,  even worse, conspire with Y to get the idea funded without having to deal with an inexperienced (or fatally naive) X? A further bothersome facet:: Y is in the same city where Agency A does that topic's SBIR. Does Agency A have any safeguards to keep its energetic minions from doing what they see as the public good without regard to private ownership?

AF Materials Conflab.  The AF Materials Lab will have an SBIR workshop July 24 in Dayton (where else?) where it promises the chief SBIR mouthpiece will talk maybe along with the technical folks who actually make decisions. At least the price is right.   Marvin Gale (937) 255-4839 or Lt.Williams  (937) 255-2094. 

Help the Eyes. The National Reconnaissance Office (NRO) wants innovative proposals increasing spectral diversity of NRO systems, eliminating communications as a constraint, providing agile response to changing target sets, and transforming reconnaissance to surveillance. Better spying from the sky. Awards will be up to $350K for nine months. More information at Not only is NRO no longer a black program, it has a web page for children. 

The Big Guy On the Street   DOD published its summer SBIR all-electronic solicitation closing August 14 at 0600. The odd closing time wants to cut the "traffic jam" that has plagued the DOD SBIR  Once again they warn submitters to Plan ahead and submit early! DOD sounds like it will again try the full mailbox defense when its servers cannot handle the unlimited traffic that the solicitation invites.  The agencies playing this go-round are: Army, Navy, DARPA, OSD and SOCOM.  I guess MDA has already had its fill of two solicitations a year when they wish they had zero. 

SBTC Erects a Wall.  While the SBTC advocates free-money handouts to small business through SBIR, it has closed its heretofore open website to the public. Members only through the National Small Business Association which advocates such progressive policies as ending the death tax (write your Congress, it says, for which it provides a model letter). I wonder who they think will pay for all those freebies? 

While the Great Plains slowly depopulate, the state governments are fighting rear-guard actions to make the prairie look like the states where the people are going. Iowa just passed a five-year, $503 million Iowa Values Fund to support economic development opportunities in the specific areas of life sciences, software and information technology, advanced manufacturing, and value added agriculture. [SSTI, June 5]  The biggest problem is that the percentage of US population in agriculture has shrunk to 2% from 40% a century ago. And the conditions for Silicon Valley or Route 128 simply do not exist and cannot be invented with a Values Fund. The weather alone discourages many people who prefer the year-round golf climes of Texas and California or the Euro-culture of New York and Massachusetts. . If the Congress isn't watched, it will find itself pushed by the two senators from each of the many red states to pass appropriations to support such ventures with federal money. Some SBIR advocates, for example, argue than SBIR is good for Iowa because it provides money to keep grad students in Iowa. Dubya should even support such an attitude because it was the additional electoral votes of those two senators gave him his razor-thin margin of victory in 2000. 

Yet Another Incubator  Maryland and the US Dept of Commerce will sink $400K into another business incubator. Baltimore's newest technology incubator dream, Emerging Technology Center @ Johns Hopkins Eastern, s a collaborative effort involving the university and several city, state and federal agencies. ... The $6.7 million renovation project for the Emerging Technology Center @ Johns Hopkins Eastern is expected to be complete by late September or early October. It will have the capacity to house up to 35 small businesses.  [Stacey Hirsh, Baltimore Sun, Jun 3,03

NIH Gets It.  In a recognition that commercializing is a long slog for biological products, NIH re-opens its COMPETING CONTINUATION AWARDS program to extend Phase 2s for 2-3 more years at decent money for projects that  ultimately require: 1) clinical evaluation and 2) approval of a Federal regulatory agency. If it is given to humans, it needs extensive trials and approvals. Up to $1M per year for up to three years. That's the kind of enlightened SBIR policy that leads to SBIR success at its major goal - to have an impact on the US economy through exploitation of new technology. It beats by far the shrunken approach of the anti-commercializers who want to be left alone in their government funded labs to play with their hobbies and never be judged on whether anyone ultimately cares. BMDO once had a similar policy of extending Phase 2 awards where there was solid evidence of market attention to the ultimate product, which NSF and the Army copied in restricted form. 

The Navy seems to have recovered from the DOD SBIR input hiccup and has announced many of its Phase 1 winners. Oh, of course the usual suspects are well represented. 

In sync with the SBTC plea for mediocrity, a group of high technology companies  with a strong history of successful participation (whatever that means) in SBIR (no web site found for the New England Innovation Alliance) also sent a white paper advocating watered-down metrics and a hand in shaping the metrics. In an interesting admission they claim that there is no reason to expect and systemic difference in the quality of the SBIR R&D product compared to that performed by either large companies, non-profit institutions, Federal research laboratories or universities.  Which completely undercuts the basic SBIR claim that the government and the economy need small business because it is better. In other words, the two gaggles of SBIR junkies claim that they neither commercialize nor do better research, but that they should get 2.5% of federal R&D anyway because .... yes?

Apologia Pro Mediocritas.  In a white paper, the Small Business Technology Coalition argues that SBIR should simply hand over its budget to small business and forget evaluation. Besides admitting that SBIR has failed to get small business any larger share of federal R&D, SBTC says that commercialization was only a bonus objective, not a primary objective. The SBIR mills, which organized and pay dues for SBTC, want to be left alone to spend agency money on what the companies think is innovative R&D. They spew a list of reasons why commercialization, or indeed any other hard evaluation criterion, must fail as a measure. Their anti-commercialization relies on a bi-polar world of either government or venture capital as the source of any use and impact of the new technology. They thus ignore the biggest commercial buyer of new technology – thousands of commercial companies. Unfortunately for SBTC, if there is to be no growth and no evaluation, the only support for SBIR is either blind faith or blind politics. 

The National Academies’ Chuck Wessner assembled the usual suspects plus an interesting group of outside intelligentsia for a day-long séance on “best practices” for SBIR. The agency mouthpieces defended their agency’s policies, economists opined, a venture capitalist, a couple of SBIR mills and their lobbying force wailed about how focus on commercialization undermines innovation for R&D companies, NIH-funded companies praised NIH management, and Jon Baron characteristically proposed an interesting new evaluation idea.  Deep down, however, the day missed any hard discussion of what SBIR was really doing and accomplishing because the decision makers did not get to talk. Agency policy is fine for structure but the make-or-break decisions are the selections of projects and companies to fund with how much money and with what controls. That such a meeting was held at all comes from the 2000 SBIR re-authorization terms that were rammed through by the House Science Committee which wanted to evaluate whether SBIR was doing much good at all. Wessner quarterbacked the whole day brilliantly and posed many interesting questions to the many panels organized by agency. The Academies have been around Washington for a long time and know how to handle the delicate tug between politics and policy evaluation.  All the agencies reported that numbers of SBIR proposals have skyrocketed in the years since the tech bubble burst. DOD is mulling an expansion of solicitation frequency to six or more a year although it avoided discussing how it would avoid just getting recycled proposals and whether spreading topics in smaller bunches would do anything to solve the long delay from conception of both project and innovation to actual serious money. If a topic is proposed only once a year, it makes no difference to innovation whether that topic is done in January or July and how many other topics are announced at the same time. A worthwhile goal would be to open continuously to new ideas and to discourage uncompetitive proposals that waste everyone's time. For that, though, the agencies have to be a lot clearer in what they are looking for. 

"Wall Street doesn't believe in most alternative-energy companies," says analyst David Kurzman of H.C. Wainwright. Indeed, many analysts have stopped covering the industry, and information on it is scarce. ... Solar power has also become a viable energy alternative. "Twenty years ago, solar technology was only good for heating your swimming pool," says Giesen. "Now, it can add energy to your house throughout the day and store extra power overnight in batteries." Energy Conversion Devices  has developed the best solar technology for industrial use, Giesen says, while AstroPower  is tops for homes. Both have suffered sharp declines in the bear market even though their revenues are climbing. AstroPower trades for half its book value; Energy Conversion sells for only 1.6 times its book value.  [Lewis Braham, Business Week, Jun 2,03]

More.  A National Academy of Sciences panel of distinguished experts in technology, industry, and economics recommended  more university-industry cooperation, more money for science education, and more incentives for engineering students as a solution for the problem of slipping US semiconductor dominance. To avoid getting entangled in the political thicket of government support for industry, the panel limited itself to "best practices".  As for more money from the government, no speaker offered to pay more taxes to fund it. Their policy is manna, and about the providing God, Don't ask!  The doom-mongers fear that foreign competitors will succeed where the US will fail in generating more smart engineers and more research money that gives the US companies a lead in the next generation of semiconductors. Like the attitude of SBIR beneficiaries and their SBA cheerleaders: someone else must pay. But as long as the Republicans slice tax revenues to starve the government beast in the name of unfettered capitalism, there   will be even less money for research and corporate welfare , not more. 

Slightly Biased Stats. Energy says that In 2002, 37 companies won a Phase II award for the first time out of 84 companies, which can be only partly true. SBA stats show that only 23 of the companies had not won a Phase 2 in some agency by 2000 (2001 winners still unpublished). Since we presume that the Energy-crats can count,  they must look only at DOE awards in making such claims. Anyway, 23 new awardees of 84 companies (106 awards) is at least decent. The probably most wasted awards are to those companies with lots and lots of prior awards that are not held to any rising standard of proof that their funding actually produced well above average economic growth of some sort. If rising money doesn't produce rising results, it is time to re-deploy the money to younger companies. SBIR is, after all, a program aimed at infant companies and infant technology. 

VC for the Navy Too, Maybe. After getting upstaged by the CIA and the Army, the Navy says it is exploring, its way of course, a venture initiative. The Navy way to sidle up to the problem is two “wargames,” exercises that help the Navy and Marine Corps explore opportunities for sharing technology with the commercial marketplace. The latest game had participants from government, industry, and the private venture capital community.  [SSTI, Mar 23] It used to be suspected in the Pentagon that the driving reason for the Army's doing something new was that either the Navy or the Russians were doing it. All three VC ventures are small potatoes, experiments that has some publicity value but too small to do any damage to vested interests in R&D. 

Competing for Energy Phase 2s?  Energy passed out 106 Phase 2s last year, 22 of which went to 14 companies that already had won at least 20 Phase 2s. Two went to a company that has had at least 167 Phase 2s. ("at least" because the SBA data base has a long lag). One wonders what the agency's strategy is for SBIR, other than to pass out the required money to the qualified (politically targeted) companies.  How many Phase 2s does it take to get a company onto its own hind legs and running on its own? Why a long SBA data lag? It is in no agency's interest to provide good SBIR data to the public. 

Nano-Hysteria - Better Than A Tax Cut.  The Nanotechnology Research and Development Act authorizes $2.135 billion in federal research money over the next three years for a burgeoning field with the potential to revolutionize everything from medicine to industrial manufacturing to the limits of computer memory. With strong White House backing and wide bipartisan support, the legislation is expected to easily pass the House today and is on a fast track to pass the Senate in the coming weeks.  ...  Researchers are working on more far-reaching uses. .... ``The potential for this technology is so immense and vast, it probably exceeds anyone's imagination,'' said Rep. Mike Honda, D-San Jose, the lead Democratic sponsor of the bipartisan legislation. ``It's going to be a big shot in the arm for the economy.''   ... `I think it is the future of technology across the board,'' said Phil Bond, U.S. undersecretary of commerce for technology. ``Once you get down to the atomic level, you're touching everything. It's terribly important for American leadership in the technology age that we lead in this space, and I think we will.'' [Mercury News, May 7,03]  When politicians claim "vast potential" keep your hand on your wallet.  If it's as good as they claim, the private sector will sniff out the profit possibilities and over-invest in them. I smell superconductivity redux. 

ENTREPRENEURS AND UNCLE SAM.  Three years ago, it seemed like every entrepreneur was fixated on getting venture capital. Today, it seems like government contracts are the new fixation. .. the Federal government has become the target customer of both first and last resort for many new companies. ..  Be careful what you wish for!   ....  Even though government agencies encourage new competitors, competing and winning a contract can be tough. First, the competition can be intense. For example, in the aftermath of September 11th, the Pentagon issued a call for "new ideas" in the war against terrorism. The response was incredible as 12,400 proposals rolled in. Yet, only $40 million was available to fund these new ideas.  .... it's difficult to break into the government market and once there, government agencies are often difficult customers. ...  Consider the case of Boston's Tenebraex [which]  sold a patented technology that limits glints from the glass of binoculars and sniper sights; ... Once the Army began using this technology, other contractors used this patented technology in their own products. Current contracting rules allow such re-use, as Tenebraex painfully learned after years of litigation. ...  The good news is that there are many signs of progress. [newsletter, National Commission on Entrepreneurship, Nov 02] 

SBA's SBIR Overseer said, I would like to thank you for your efforts in response to my "last minute" request for success stories in support of the SBIR ROP and FAST programs.  The hearing went much as I expected, very well!  The committee had some interesting questions for the witnesses, and their overall comments were in favor of funding the FAST and SBIR ROP programs.  Surprise, the oversight committee liked spending money for constituents. FAST is a handout to states to help conduct interstate competition for SBIR funds, especially to the have-not and flyover states. SBA likes it because it gives the agency more to do and helps maintain the image that SBIR is a highly competitive and valuable small business innovation program. 

small firms are much more innovative per employee than are the large patenting firms, 13-14 times more innovative. ... firms do not become serial innovators by accident. These firms focus on innovation. They tend to set a goal that a certain percentage of their earnings should come from new products. 3M is famous for doing this, but many of these small firms do the same. ...  Small firm patents are more technically important on average than large firm patents, and a small firm patent is more likely than a large firm patent to be among the top 1% most cited patents. ...   small firm contribution to innovation is most intense  in new technologies.  [Small Serial Innovators: The Small Firm Contribution To Technical Change, by CHI Research, Inc., Feb 27,03]

Profits of Doom.  Let us now praise famous men, the wild-eyed enthusiasts who begat the bubble-boom. Conventional wisdom, you may remember, once rode side by side with the prophets of change. When the stock market hit the puke stage, conventional wisdom turned. ... In fact, history will look back and see gain and gain. That's because profits are not the same thing as social value. Just because a group of firms, an industry segment, flopped as a profitmaker does not mean it failed as a producer. Profit is primarily a signal about the size of a set of enterprises: If too small, then customers are desperate for your products, prices are high, and profits abundant; if too large, then customers are satiated, you can barely give the stuff away, and profits are absent. If profits are high, the industry segment should grow; if absent, it should shrink. ... But just as the profits made possible by the railroads showed up in the pockets of Sears stockholders, we will be surprised all over again. And what a rush that will be.  [J. Bradford DeLong, Wired, Apr 03]  If  you are an SBIR proposer who needs some rationalization other than profits for government investment in your enterprise, trot out some history and economics and societal gain (make it credible, please), even though agency technocrats are unlikely to pay much attention. 

Newfound Conservative Principle. : Times have changed in Alaska. In a May 4 opinion piece for the Anchorage Daily News, Gov. Murkowski's Chief of Staff Jim Clark writes, "Funding entrepreneurship is not an essential function of government." [SSTI, May 16]  Alaska is abandoning its Alaska Science and Technology Foundation (ASTF) after 15 years and an annual direct return under 2% a year. Like many government support programs for business, the agency would have done better to buy T-bonds with the money. Help Alaskan industry: Eat more salmon! 

The myth of small business is one of the more ridiculous bipartisan superstitions that influence government policy. Small businesses, by their nature, come and go. They create more jobs than big businesses and wipe out more jobs, too. ... Small businesses are swell. But special favors for small businesses make no sense in terms of either fairness or prosperity.  [Michael Kinsley, Washington Post, May 17]  Kinsley recounts the story of Bush using a small Albuquerque company that built its wealth with government contracts as a backdrop for an appeal for a mythical economic growth package. 

The Principle Problem. Hordes of well educated people in and around SBIR fumble "principal" and "principle". Seems they paid more attention in chemistry class than English. "principle" is always a noun meaning standard or law, as in "the uncertainty principle"; "principal" can be either adjective or noun depending on its use.  As a noun, it is a person or an amount of money; as an adjective it means "main" as in "Principal Investigator". Although I've never known an SBIR proposal to be down-rated for such fumbling (maybe the government guys don't know either), why risk it? 

Pork is What the Other Party Does. Republican advocacy of science pork is back. Exhibit A for 2003 is nanotechnology, the cutting-edge science of direct manipulation of matter at the molecular level. Government wants to get involved in a big way, despite companies such as IBM, Hewlett Packard and Intel - and numerous venture capitalists - already taking the lead. ... The field sports its share of hype: ... the little technology has clearly reached the big time. Michael Crichton's best-selling novel Prey, the story of destructive, out-of-control nanobots is surely only the latest in pop culture's speculations on the dark side of micro-engineering. Meanwhile, the ETC Group, while alarmed about the potential hazards of unrestrained nanotechnology, points out that yearly scientific citations to "nano" have grown nearly 40-fold, the number of nano-related patents is surging, and nine nanotechnology-related Nobel prizes have been awarded since 1990. .. .  To many in Congress, what's needed is not a free hand for technology entrepreneurs to explore this blossoming field, but government money.   ... couple billion a year.  That's not huge by Washington standards, but such programs only grow. Politicians have no innate ability to pick among competing technologies, whether nano, macro or otherwise. If they did, they'd be entrepreneurs themselves. ...  Politicians can merely transfer wealth, which automatically invites wasteful pork-barreling to propel funds to one's home state. ....  technology reporter Declan McCullagh about federal nanotechnology funding: "I suggest giving them nanodollars."  [Wayne Crews, TCS, May 15,03] 

At Least It's Useful.   NIH has so much SBIR money that it often uses it for non-innovative awards. The classic was a smoke-enders video in the 90s. Now it has awarded SBIR for software to write SBIR grant proposals to Cayuse which proudly trumpets its GrantSlam enabling grantee organizations (like your institution) to send proposals in an electronic datastream directly to NIH.

Another Slice of Pork, Please. The consortium of Northeastern University, the University of Massachusetts at Lowell, and the University of New Hampshire is one of five finalists selected by the National Science Foundation to develop nanotechnology research centers. The foundation, which narrowed the field from 65 applicants, will fund two centers nationwide, with each getting $2.7 million a year for up to 10 years.  ... They'll be selected based on their proposals' potential for bringing new technologies to market within five to 10 years, as well as their scientific merit, [Robert Gavin, Boston Globe, May 10]  Don't worry Montana; your two senators will find something in trade for their votes to hand this small amount of money to one of the big coastal tech centers. Unfortunately, such a project must go to the rich who can show that their area actually produces economic gain from technology R&D whereas Helena can only dream of more gold mines. And how will NSF judge how well an academic consortium will get new technology to market? I suppose they have lots of people who can fantasize technology capital markets without having any money of their own at risk.  A better idea might be to let NSF fund the basic research in academia and let SBIR type programs seed interesting ventures for applied research to begin to develop the research into products. But that won't happen unless someone besides the usual federal agencies runs it. Maybe W will next argue that the rationale for his tax cut for big money investors is new nanotech products since he does seem to have a bottomless bag of rationalizations for war and tax cuts.  

Army Goes Venturing.   Although its SBIR is a model of conventionality, the Army (with prodding from Congress)  will invest $25M in its own venture capital fund.  Can't let CIA hog all the glory.  The first investments will seek better energy sources (live-forever batteries).  Such a tech target is by itself conservative since batteries have not had many remarkable innovations for a long time and the military investments in electro-chemistry have been a long slow slog.  The fund will be run by OnPoint Technologies Inc.which apparently won a bidding contest for the contract. (I wonder how the bureaucratic Army decided which VC to go with.)  The Army actually had some VC driven technology in Iraq, although a San Jose Mercury Mar 20 story said that a new IFF transponder by Sierra Monolithics (supported in its infancy by SDIO) emerged from $11M from Palo Alto's Storm Ventures went unused. [story from ANN GRIMES,  WALL STREET JOURNAL, May 9]

GAO poked a hole in the fed's claim of 23% contract awards to small business by noting that DOD doesn't even know who's small. David Cooper, the GAO's director of acquisition and sourcing management, said that federal databases of small businesses are inaccurate and include many major national companies.  [The Guardian, May 7]

Want a Government Buck?  Winning Government R&D Money: 2003 Federal Technology Funding Guide. LARTA claims its booklet is the nation's leading survey on technology funding by the federal government (over $90 billion per year).

Something Old, Something Borrowed...  DHS's new science chief, former defense industry executive Charles McQueary, plans to spend  $800M on technology. As long as it is old and time-tested, apparently from his  million budget.  new sensors, software, and other equipment as quickly as possible into the hands of everyone from border guards to local police. He expects "little funding for a while in the farther out science. [story by David Malakoff, Science, Apr 18]  We'll see whether the university gang stands lets their Congress OK that scheme. Even if he does, he will have to have get an SBIR program going by 2005 with something like . 

Porkers to the Rescue. Congress is preparing to save the MEP from the conservative White House hatchet. Or so they say for the benefit of constituents around 60 centers with 400 locations. Just like SBIR, government handout programs live forever. . 

President Bush's FY 2004 budget proposal calls for overall increases for the federal investment in R&D, especially for the priorities of defense development and homeland security R&D, with a mixture of flat funding, cuts, and at-best modest increases for other R&D programs.  another record at $122.5 billion, up 4.4%Most of the increase would go to defense development of weapons systems,   Two agencies get diminished expectations after years of favored treatment. ...  growth in the NIH budget would slow to just 2.7% ... DHS would become a major R&D funding source with an R&D budget of $1.0B, a dramatic increase of 49.6 percent from the estimated FY 2003 level for comparable programs  Nondefense R&D would increase by just 1.2%  Defense R&D would total 55% of the federal R&D portfolio  up 7.2%  ..., with the entire increase for the development costs of new weapons and missile defense systems; DOD basic and applied research would both decline

There is no question that our political process has produced a fiscal policy machine that spews out promises to voters that—while providing short-term benefits to politicians of both parties—expose our nation and our economy to significant long-run risks. [Kevin Hassett, testimony before Congress, 4/25/.03] Tax and government cutter Hassett goes on to claim that The problem is not caused by taxes, but rather by spending, which is always possible to "prove" with enough economic gymnastics and repeated applications of supply-side theory.

Indiana boosts tech budget. $75M for its 21st Century Research and Technology Fund, which serves to stimulate the development and commercialization of advanced technologies in Indiana. $50M over five years for tax credits to promote Indiana venture capital initiatives. $10M to expand the I-Light fiber optic network that presently includes Indiana and Purdue Universities, $9M for certified technology parks, and .$344M in university construction projects. [SSTI, May 1,03]

DOD Need More Small Business Innovation?  The governments of the world now know that if they try to launch a fighter against American air power, their planes will be blown to smithereens before they finish retracting their landing gear. [Gregg Easterbrook," American Power Moves Beyond the Mere Super", New York Times, Apr 26] Before the small business advocates finish their latest speech they might consider how that superiority was built: - with gobs of real money - hundreds of billions a year for decades - handed to dedicated military contractors.   DOD rules the world, and needs NONE of SBIR's unproved pretensions of critical contributions. DOD long ago adopted the path of least resistance by bowing to the small business politics and paying the couple percent tax for the social program. DOD rarely gambled its SBIR money of ideas that would make much difference. It then ignored any standards of efficiency or proof of effectiveness and simply used most of the money in support of its large contractors. The result was unquestioned world military domination. SBIR advocates must hope that their political clout remains and that no powerful politician ever asks whether SBIR is worth the bother. Fortunately, the pork barrel politics protects SBIR from ever being asked to prove its worth, only its ability to provide campaign value as one of the American untouchables - motherhood, apple pie, the flag, and small business.  

The Greenwoods advocate schmoozing before and during SBIR. Find out all you can about how the topic author and his superiors think (even though they will not necessarily think alike). Especially for the mission agencies who want the technology for themselves. The big trick is finding the right  schmoozee in less than a thousand phone calls. If you want to schmooze in a blackout period during an SBIR solicitation, talk about your technology and the schmoozee's wants without ever mentioning that you are even thinking about SBIR (or indeed ever heard about it). Their wants are continuous, the solicitation period is short, and they do have other occasionally used avenues for adopting small company technology.

Executives at major defense contractors are bracing for the changes. While none would speak on the record, all those interviewed agreed that lessons of the war, combined with the high cost of rebuilding Iraq afterward, would have a big impact on Pentagon weapons-spending plans. [ANNE MARIE SQUEO and GREG JAFFE, THE WALL STREET JOURNAL, Apr 11,03]

If the rich are going to pay less tax, and the military is going to get all its toys and operations, somebody has to take less government money. At the federal level, we can pretend all is well by running a deficit - a national credit card - but the states cannot so pretend. So, several states are whacking their tech programs (which don't vote).  NJ, CA, AK, and MI are making visible cuts, sometimes to zero, says Jeffrey Mervis in Science (Mar 21). 

$3B for Rural VC.  Austerity, sacrifice during war? Not in the politics of rural handouts. S. 602 calls for a federal injection of $200M annually between 2004-2013 into the New Homestead Venture Capital Fund, after $100M investments have been made each year from private and nonfederal sources. Is there any evidence that such handouts create the kind of infrastructure that the original Homestead Act did for settling the West? Only in the minds of the beneficiaries and the vote-seeking politicians. Such a program arises from the idea of "fair share" for states rather than a national program that would raise the general tide. It's an inefficiency of representational democracy. Tax the prosperous states to pay off the weak states.  

While Colorado wants to eliminate its Governor's Office of Technology, and Texas its Department of Commerce, Utah hopes to keep plugging with its tech support funding of its state VC fund and other programs like Centers of Excellence. [SSTI, Mar 7]

Lobbyists as an Arm of Government. The SBIR lobbyists claim a raft of good things done, including passing legislation and assisting SBA in drafting revisions to the Policy Directive, reauthorizing STTR, defending the new program rules from attacks by the Defense Department and other agencies, restoring $73M to SBIR that MDA tried to steal. Shades of Newt's rule where lobbyists were seen writing legislation in House staff offices. We presume such claims are mere puffery, that the government is still run by elected and appointed officials and not by lobbyists and that lobby activities are limited to screaming, shouting, and bribing. SBTC seems to have claimed such a government mantle since Jere Glover took over as honcho after leaving the SBA Office of Advocacy in a classic revolving door move. 

Mitch Waldrop (MIT Tech Review, Mar 03) tells how Jeff Jonas of Systems R&D was shocked to discover that NSA was way behind his small company in pattern recognition. How could that happen, and how should DOD escape the technology lag that comes from a requirements mentality?  CIA is trying with a venture capital operation, In-Q-Tel, that gets apparently little support from the inside establishment (as small company innovations get little support and NO VC approach in DOD).  Perhaps an energetic force like Jeff Bond can get upper management attention to opportunities lost by the tyranny of requirements and mundane SBIR topics. 

Jeff Bond Acts Again. DOD announced that Jeff Bond as the "acting" SBIR poobah.  Unfortunately, Jeff's history of acting - deciding and taking complete responsibility for BMDO's SBIR - will be mostly wasted in that bureaucratic position. If the arrangement is made permanent - never a done deal - he will have a chance, although with little power, to improve the attitude of DOD's SBIR from a burden to an opportunity. At SDIO he funded projects where the company had decent prospects for new technology to attract third party funding for the long haul from idea to product. He even co-authored a report showing how much economic return could be gauged from BMDO's investments, a standard that DOD has rejected from the outset. Maybe he could start by resurrecting Fast Track reporting that disappeared in the dead of the night from DOD's website. His biggest challenge will be to hold down his gorge as the Army, Navy, Air Force, and others object to every "improvement" that limits the generals and admirals from doing things their way. Good luck, Jeff; take the long view. 

The Technical Support Working Group got 16,000 anti-terror proposals [of which] only 120 made the cut. But now the agency is preparing for a new onslaught of proposals. It expects this week to issue its first public call for antiterrorism gadgets on behalf of the new Department of Homeland Security, which has promised to kick in $30M. [NICHOLAS KULISH, THE WALL STREET JOURNAL, Mar 4]  One barrier to acceptance is unit cost; the government wants cheap and good but reality only offers cheap or good, especially when the government production buyers start adding requirements about quality and producibility and warranty and documentation. 

ATP Hired Harvard. As the Bushies try to kill it, ATP sponsored a study by two Harvardonians - Between Invention and Innovation: An Analysis of Funding for Early Stage Technologies . To the delight of NIST and probable chagrin of the Bushies, the report finds that federal intervention complements, rather than substitutes for, private funds. At least it didn't find federal funding critical as any advocacy organization would likely say. The findings were the usual: private markets are not efficient at allocating capital to early stage development and conditions for high tech growth exist in only a few places. The question is whether government is any more efficient at allocating capital than the many and diverse private sources. The Bushies, who represent the private establishment, say No by instinct and they may be right. If SBIR is any example of what government does with early stage development, government is more inefficient than private sources. ATP and SBIR are like tax cuts - they sound nice in theory but are really only political vehicles for shoveling money to favored groups. Accountability is always deferred or faked since American economics is too complex to trace any result to any action. The whole study is available. Wha'ppen Polystor?  The story is simple and heart-warming for government R&D types. Polystor started life with a DARPA contract that allowed the founder to skip out of Livermore Labs (which was looking for ways to de-populate). A BMDO Phase 2 SBIR followed which induced a British company to toss in money which led to a mass production Army contract in 1999 plus $9.5M from the Advanced Battery Consortium and an ATP grant.  PolyStor was the first Li-ion battery producer in the United States and the first to use a nickel cobalt oxide cathode that delivers the highest capacity and energy density in the industry, says Branscom et al. In winter 2001 the firm employed roughly 150 people, with a staff of 35 in research and development. In 2002, Polystor ceased operations. Sweet story ends. Which suggests several hard questions for the government advocates: 1) Why did all that government money not produce a sustainable economic winner? ; 2) Is the battery powered vehicle still a government pipe-dream?; 3) Did the government ever ask whether that technology at that price could survive in a competitive market place especially in a company nurtured by government handout?  4) How much government money is too much?  

Too Much of a Good Thing. Not content with a generous DOD decision to re-open the SBIR fiasco for three weeks, the SBIR advocates now complain that is too wide a window and will let in people who should be excluded for true lateness. As always, better is the enemy of good.  Maybe Jeff Bond in his new role as DOD SBIR policy administrator can keep his cool as the debate rages about how much of a good thing is enough. Jeff must have developed a pretty thick skin in his many years as the decider for BMDO SBIR. I told him as he followed me into my old job that if you ever want a lot of enemies, have a lot of money to pass out. Now he can still have enemies even though he has no money to pass out. The advocates' ingratitude strengthens the conservatives arguments for smaller government and reliance on free markets. 

When St. Olaf College in Northfield decided late in 1999 to phase out its investments in venture capital, it had no clue its decision was so prescient.  [Susan Feyder, Minneapolis Star Tribune, Feb 28]  Maybe those solid Norwegians in their solid stone buildings on the hill overlooking the prairie could see farther than we thought.  By comparison, the University of California System, whose fund dropped by 11 percent, recently said they plan sizable cutbacks in their private equity allocations. 

With a bow to common sense, The DOD will re-open its winter SBIR solicitation for three weeks or so starting next week. Stiff-necked bureaucrats yield from an untenable position that the whole problem was not their doing. Details to be announced. Get yours in before they find a way to change their mind again. 

Mountain of Irrrelevant Evidence for ATP.  In the battle to save ATP from the administration's machete, SSTI reports a mountain of evidence in the form of two new studies that praise ATP. An NBER working paper claims more patents and an NRC paper claims a raft of soft advances in private sector projects. Which is all nice once you accept that government should be dabbling directly in commercial R&D, which is an industrial policy that the free-market Bushies do not accept. And their mentality of shrink (or own)- the -government will keep trying to kill ATP.  

Systems Research and Development, Stratify,  and Intelliseek are developing smart tools for intelligence analysis for In-Q-Tel, says MIT Tech ReviewMeanwhile, an English  company  i2 has a tool -Analyst’s Notebook - used by intel folks to brief Prex Bush. 

Maine decides that money is cheap enough to borrow $70M for R&D spending on joint biomed research at U Maine and some research in natural resource based industries. Some of the money would be used to equip start-ups that have evolved from the natural resource industries research. Similarly, Iowa plans to invest $50M to help establish Iowa as a leader in the life sciences. [facts from SSTI, Feb 14,03] Love that government money!

Inknowvation is soliciting more opinions about how the Defense Department should resolve its self-administered dilemma of rejected proposals. Vote early and often and hope the the bureau would actually listen to outsiders. 

Consolation prize yanked away. The administration deleted the $10M FAST funds from the current fiscal year and thus stranded the plans for state organizations to get federal money to help companies get more federal money from SBIR. The money was put in the SBIR re-authorization act as a sop to the lobbying organizations who failed to get more SBIR (as if the present SBIR was doing any good for anyone except for keeping jobs in small companies as long as the money lasts). 

The DOD SBIR Saga. Needless to say, the inability of companies to submit their proposals has caused a significant backlash, and as a result, the entire DoD 2003.1 SBIR solicitation process reportedly is on hold.  The SBIR Gateway web site has been chronicling the events following the submission deadline.  To view information regarding this saga, including links to editorials from people significantly involved in the SBIR community, visit[SBIR Alert, Feb 7]

The Bushies want to zero out ATP and MEP as industrial policy in FY04. Their idea of acceptable industry subsidy is unlimited mineral drilling in environmentally sensitive areas, unpublicized tax subsidies, tariff wall protection to uncompetitive industries in politically divided states, and transfer of environmental protection and repair to state and local governments. The first Busies wanted the same thing but couldn't drive their wishes through a Demo Congress. Stay tuned to see whether the 2004 plan is just negotiating bluster or something a Repub Congress would actually do. When the crunch comes, the betting should be on Bush doing whatever serves his re-election. 

Meanwhile, the Bushies want record levels of R&D spending with priority on bioterrorism, nanotechnology, fuel cells, and networking and information technology. And in line with his pie-in-the-sky hydrogen fuel idea, his war for hydrogen will double DOE's H research. More R&D, of course, means more SBIR. 

To keep up with the bitter debate over DOD's inadequate reception of SBIR proposals, scan Ann Eskesen's discussion forum.  When DOD took the hard line that "you were warned", a few failed submitters invoked procurement law in protest which could tie up the approval process for a while. Bureaus like DOD, especially a SADBU office, are not good at inventing innovative and fair solutions that would be accepted by all concerned, mainly because there is always at least one disappointed proposer who appeals to GAO, or other legalistic remedy with unpredictable results, to halt the process. 

Politicians "Solving" Economic Problems. Vermont's new governor. Douglas wants to create economic security:  I am announcing a $107M job creation and economic security package. My jobs program is the most significant investment in the entrepreneurial spirit of Vermonters in recent history. At full implementation, this initiative will create thousands of new jobs and save thousands more...My jobs program includes several new proposals that will make more money available to entrepreneurs through the Vermont Economic Development Authority so they can begin new businesses and grow existing ones. I propose a major expansion of the Vermont Jobs Fund, to allow the financing of $60M in low-interest loans to entrepreneurs. I also propose the creation of the Vermont Opportunity Fund that will provide $25M in mezzanine level financing for established small businesses that require new capital to take their next step. [SSTI, Jan 31, 03] Spend public money and pretend some economic gain beyond the jobs paid for by government. Politicians know that such futile measures appeal to voters who disdain any understanding of political economics. SBIR suffers the same fantasies as small R&D firms spend government money doing government work. When the money ends, the jobs end too. 

Wait patiently for DOD's decision on your proposals. That will take many weeks because only a few were decided before the proposals arrived. And even for those, the agency must not pass out any money in a topic until all proposals in the topic have been "evaluated". 

Free Forum on Free Money. Mass High Tech sponsors a forum with a panel discussion on sources for government funding, proposal review procedures, and company experiences, plus war stories from veterans of the free money wars. Tues  Jan. 21 from 5:30 to 8:00 p.m. at the University Park Hotel@MIT. Panelists include Bob Kispert  from the Mass Tech Collaborative; Greg Martin from  Hemedex; and Shane Weber of Millennium Pharma.  e-mail to

SBIR On Hold?  Without an appropriation enacted the agencies have an excuse to delay SBIR funding since each contract or grant is a new effort and therefore not covered in a continuing appropriation. Don't be shocked if the agency you hope to embrace suspends SBIR for a while. Only DOD has an appropriation. 

States to Fed: We Need YOUR Money.  The NGA implores the fed to maintain the federal government's share of support for the Manufacturing Extension Partnership (MEP) in FY03. Of course the govs explained how the MEP is a partnership supported by states, federal government and small manufacturers.  MEP is one of those burrowed-in handout programs with a  400 offices across the country hat provide technical assistance for small and midi manufacturers adopt new technologies, processes, and business practices. A copy of the govs letter::,1169,C_LETTER^D_4801,00.html  They all act as though the federal government creates money and wealth with which to hand money to the pet state programs. MEP acts like other handouts (SBIR and ATP) in that its efficiency is assumed rather than measured by any standard that would stand capitalist scrutiny. The governors might ask themselves why a federal government created by the states should be collecting tax money from the states' citizens to hand back to them after a deduction for handling with no value added. How is that anything more than a job machine for national politicians and bureaucrats? 

Farmer or Techie? When the farmer who won $1M was asked what he would do with the cash, he said that he would keep farming until the money ran out. Guess he never heard of FBIR that keeps plowers going for decades. [joke from Bloomberg Personal Finance] 

It's not easy being an incubator in Arizona. The Tucson Technology Incubator will close this month after three years of operation, interim President Bo Statham said Friday. The incubator had not met its goal of working closely with the University of Arizona, and it will be replaced by an incubator that will focus on technology being developed by university researchers, Statham said. ... Undiscouraged Flagstaff incubator hopes to see start-ups grow. [Jane Larson, The Arizona Republic, Jan. 6, 03]  Arizona's growth industry is geezer golf and geezer housing in cold Minnesota  months. 

In-Q-Tel, the CIA's two-year-old venture-capital arm in Silicon Valley, has so far invested in 25 software startups. In-Q-Tel CEO Gilman Louie aims to hammer high-tech plowshares into swords. "We want to get these technologies into a form that's going to be useful to the intelligence community," he says. With corporations reluctant to buy technology from startups, the cloak-and-dagger set may be the best hope for software's small fry. [Jim Kerstetter, Business Week, Jan 13, 03]

After getting attention and academic papers in 200 and 2001, SBIR disappeared from the agenda of the American Economic Association's annual meeting. Perhaps the academics have seen that there is no economic results to analyze.

Year transition



San Diego has High Tech Sunshine. Employment in military technology, software and biotech rose last year, while telecom, computer hardware and electronics manufacturing plummeted for a net gain of 11,000 tech jobs, says Dean Calbreath (San Diego Union Tribune, Dec 24) The number of tech companies also rose, 11 percent to 1,400 firms.

The Bush administration says it will deploy an anti-missile defense in Alaska in time for the 2004 election. Its purpose? Shoot down Democrats. Its chance of working? Well, depends on how you view the success rate of test shots to date, something like 50% worked right. Its effect on MDA SBIR? Already in place as MDA emphasizes short term predictable support for existing programs. Got an innovative permafrost digging concept that's ready to go? 

SBIR proposers to DARPA, the self-admitted leading edge explorer, should note the requirement that TRANSITION OF THE PROPOSED EFFORT IS VERY, VERY IMPORTANT.  THE SMALL BUSINESS SHOULD INCLUDE THEIR TRANSITION VISION IN THEIR COMMERCIALIZATION STRATEGY.  THE SMALL BUSINESS MUST UNDERSTAND THE END USE OF THEIR EFFORT AND THE END USER, i.e., ARMY, NAVY, AF, SOCOM, ETC.  That is, even though DARPA cannot stuff its ideas down the throats of the military services who often gripe that DARPA is not doing what they want, proposers who have only a vague idea of military dogma are supposed to divine how the military would adapt the new technology, That is an open invitation to fantasyland and who knows how DARPA will judge the fantasies. It's also notice that SBIR mills are especially invited to a conservative party. Proposals due Jan 15.

Most innovative technology is developed by small companies that are unknown to the military and lack the marketing expertise to successfully promote their products to the services, he said. Such companies routinely approach venture capitalists for support, Arthur Cebrowski (ViceAdm, retired) told a gathering of technology executives as he floated a plan to use VCs to get the technology from the unknown companies to military buyers. [thanks to Jeff Bond for spotting the piece in, December 5, 02] Good grief, what has DOD SBIR been doing for two decades that led to such a statement? Muddling, muddling, and more muddling. It has even let its one VC link wither as it downplays its own Fast Track presumably because it introduced too much private money into SBIR. Part of the push for more VC involvement is jealousy over the good press that CIA got from its VC venture In-Q-Tel. Maybe, possibly, some day the MDA SBIR deadbeats will get the message and go back to the lively SBIR approach of the 1990s that harnessed energy from the info-tech bubble to develop new technologies for the next generation of anti-missile (or even a long-delayed first generation) defenses. 

Science, Fiction Will Change Face Of Army says Roger Roy (Orlando Sentinel Dec 5) about stuff he saw at the 23rd Army Science Conference. armored uniforms, artificial muscles,Armored vehicles that can "self heal" battle damage, giant military transport aircraft (certainly not an Army vehicle), thrust augmented entomopter. It must have been gizmo heaven, but probably none of the gizmos came from Army's SBIR which focuses on stuff already established, not stuff from the sixth dimension where future wars might be fought. 

North Dakota will have Smart Growth (a political name for the usual spending in search of a governmental boost for the state economy), a host of programs linking education, job creation and career development. Part of the scheme is three new VC funds (hoped-for magic) and a $4500 salary boost for every teacher. Move there now, opportunities have never been better, at least until the money and spirit run out as little new develops and winter winds freeze the blood. North Dakota's move flies in the face of the hunkering down planned by most states as tax revenues shrink while no state beneficiaries are offering sacrifice.    

A Boston SBIR firm was raided by the anti-terror police. Ptech had one Phase 1 SBIR from USAF for Advanced C2 Process Modeling and Requirements Analysis Technology.  An anonymous USG official said, We're investigating whether a businessman on the list of alleged or potential terrorist financiers is a part-owner of the firm, The question is whether there is a potential for U.S. government computer systems being compromised For example, does the software company have the ability to access computer systems using knowledge of the software?

Massachusetts won't let the religion-infused Bush administration undercut the state's competitive advantage in bio-research. Along with the other bio-research states (CA, NJ, PA) MA will pass a state law enabling stem cell research even as the federal government bans federal research money from sponsoring such research. [story MIT Technology Review, Dec 4] Eventually the fed will have to cave and allow science to advance instead of religious standards to hold back scientific advance. We are not a theocracy even though the Bushies pander to the religious right.. And as a Wall Street Journal headline trumpets today (Dec 6) Science Panelists are Picked for Ideology Rather than Expertise on a story of how HHS picks scientific advisory panels (in case it occasionally would pay attention to scientific advice). 

NASA has a program to help small business commercialize "NASA products" while it continues to ignore most innovations offered to its SBIR. The NASA Glenn Garrett Morgan Commercialization Initiative (GMCI), run by a contractor, wants to "help" small and minority companies get somewhere, although it is hard from the company's blather site to decipher exactly what is on offer. Companies should look skeptically at government offers of help in commercializing since government has no capital at risk and just wants to impress a gullible Congress that its R&D money is well spent. Evidence of economic success is less than overwhelming. Instead, spend your energy to find a commercial partner/adviser who makes money when you succeed. They will at least tell you if you're merely dreaming. 

The Rich Got Richer. NASA followed the lead of the other mission behemoth and gave most of its SBIR awards to veteran proposers. The 295 awards went to the likes of Foster-Miller and Los Gatos Research 5 awards each, IAI 4, Advanced Fuel Research, AEC Able, CFD Research, Integrated Sensing, Lynntech, Metron, POC, Pioneer Astronautics, Plasma Processes 3 each. The rest of the list is familiar to any student of SBIR. While NASA commercializers bleat about the spin-off, the centers pick winners who will perform just the service the centers want. 

Is 15% Failure Rate Too High or Too Low?  Sabine Vollmer's story in the Research Triangle's Biz Journal (Sep 30) said the SBIR failure rate was 15% in that 14 triangle startups that got $6M (out of $40M) federal research grants since 1996 went out of business. That business failure rate is something that the federal agency, in this case NIH, cannot reasonably track. It can, however, track technical success or failure of its funded projects. There a 15% failure rate would indicate a conservative bunch of bureaucrats. Far, though, from ultimately conservative, like the Army, which abhors failure (as judged by the can't-fail nature of the projects it funds in SBIR).

Now that Bush has expropriated the Demo DHS idea and basks in its adoption, where to find clues on how to exploit it?  Homeland Defense Journal, a freebie, claims "We are 100% Homeland Defense - This is our mission, our only mission." Stay tuned for political posturing and less money than you thought. The oversight committees for departments losing functions will try to keep their money at home in their own version of homeland defense.  

Double NSF. How nice, the politicians want to double NSF (and its SBIR with it).  Mikulski said, I remain fully committed to the doubling of the budget for NSF over the next five years, but without the support of the administration, the authorizing committees, and the Budget Committees, the appropriators cannot do it alone. Well, who's going to pay? The other guy, of course, cut that waste, fraud, and abuse. W wants his tax cuts with the magic math that they increase government revenue. The appropriators are likely to torpedo the idea, or at least defer it to the indefinite future because they cannot pay off all the stronger interest groups without running up the national debt again.  Political fantasyland. 

We Fly, You Crawl. If you're looking for Air Force SBIR money, be prepared to compete with a long list of old favorite companies and keep your objectives incremental. Crawl; let them fly. Propose a predictable useful result, even if minor in significance, (oh, right, your idea is never minor) that helps the AF understand what it is doing. Do NOT challenge present AF methods (let the Army and Navy do that). A random walk through AF SBIR Phase 2s started in 2001 in companies I don't already know, shows incremental advances in military technology. The companies I do know are already committed to incremental R&D. Few projects will produce anything commercially marketable. The list of 221 awards has 50 going to firms winning more than one (Innovative Scientific Solutions, 5, PSI 4, Alphatech 4, Foster-Miller 3, Ultramet 3, Mainstream 3),  firms who get tons of SBIR. The rest of the list is at least half to firms that also win a lot. 

The biggest legislative impact of the elections is likely in the area of homeland security, says Bruce Mehlman, Assistant Secretary for Technology Policy at the U.S. Department of Commerce. The new Homeland Defense Department will include an Undersecretary for Science & Technology, and should be the focal point for significant new investments in R&D. The legislation itself includes several billion dollars in new funding, and the Undersecretary is likely to guide significant future investments in technologies relating to homeland security. [quoted by Wendy Hall, LARTA, Nov 25,02]  Looking for a piece of that new pie? So is a long line of applicants and their lobbyists. And every one has an irresistible idea. It'll be a feeding frenzy for what promises to be less than the eye can see. A lot of the spending will simply be transferred with the function from the losing department. And the pressure to hold down the deficit will limit any bonanza. For certain the DHS will have an SBIR program since the enabling law did not exempt it. But how that SBIR will be oriented remains a mystery since no structure, or more important, anyone with a philosophy (other than re-election of the president) has been named to organize it. One clue is the emptiness of Mehlman's statement Specific programs are always subject to competing priorities and alternative investments in a very tight budget cycle, but overall R&D should continue to grow. Partnership remains the watchword, and progress is only possible via bipartisan cooperation. Here again we are fortunate for the long-standing and continuing bipartisan consensus that R&D is essential.  Although the new start is a chance to do what SBIR nominally intended, the odds favor another bureaucratic struggle for money and power which usually means emphasis on relevance. The future will have to take care of itself and any breakthrough in technology will have to come from the private sector unaided by government nursing. Nevertheless, stay tuned for an SBIR announcement next summer.  

Navy Spreads Phase 2. With only three big chunks to multiple winners, the Navy spread its 132 Phase 2 SBIRs like peanut butter over 120 companies. True to form it gave some awards to just plain analysis, The performance of simulations, especially distributed simulations, can be very dependent on certain critical operational factors such as processor loading, available network bandwidth, or aspects of the scenario being represented. To date, there is no method of characterizing the expected performance of a simulation as these conditions vary. ... develop a system that will automatically generate such characterizations. Once a simulation has been characterized, the system can also be used to provide confidence limits on the validity of the representations provided under the specific operating conditions of any simulation run., and adapting existing technology to Navy spec five key technical objectives which collectively provide a Maintenance and Telepresence System (MATS). ... Address and plan resolution of MATS usability issues identified in Phase I. Address the key enabling technology areas that will be focused on to meet topic goals. Address Telepresence effectiveness issues. Address existing and proposed technologies to allow hands-free document navigation. Evaluate available virtual reality applications and assess how the MATS can use them. To assure a smooth transition to Phase III, the MATS design will be refined based on results shipboard evaluations. The final product will be a MATS suitable for shipboard use aboard Virginia-class SSNs and other U.S. Navy vessels with similar network architectures. And an Optimized Structural Component Assembly Manager (OSCAM) ... will create a module system compatible with emerging CAD standards, commercial cutting and welding systems and suitable for adaptation to various manufacturing requirements, with emphasis on shipbuilding. To ensure commercialization success, as part of this initiative, the laser welding process and the product of the process will be certified. A stroll through the abstracts shows baby-step innovation and nothing with a market exploding potential dangerous to Navy dogma. Nice, safe, predictable steps forward. So, if you want Navy money, make your proposition concrete; if possible, name the ship on which it will be installed. Got real innovation? Take it to .... good question.

Proposing to NSF. Since you want some NSF SBIR money in either electronics or bio-magic in the January solicitation, you would like to review what NSF has funded in the past to get its pattern. Good luck! NSF makes it hard to parse its SBIR. Like good bureaucrats they tell you how to fill out the forms but don't want analysis of results from past moves. You can see the SBA lists of awards that reach only through 1999. There you could easily deduce that NSF is as bureaucratic as the other agencies, funding many of the same companies over and over. Apparently, like the others, they never ask the question, What did the company do to exploit the earlier funding we and other agencies gave them? Why should they, anyway, when not even Congress seems curious? Some advice then is to emphasize your science (the academics drive the reviews), show your academic credentials (academics love those PhDs), and promise anything plausible economic future (academics neither know nor care)


Energy Open to Experience The DOE SBIR solicitation is open until Jan 14. Judging by its most recent list of Phase 2 winners, it seeks good science from experienced researchers. Failure to commercialize previous multiple awards seems not to matter. The list includes the usual suspects: Omega P (4), Radiation Monitoring (3), MER (3), TDA (3), Calabazas Creek (3), Physical Optics (2), Eltron (2), Aspen (2), CeraMem (2), Ceramatec (2), Energen )2), Tech-X (2), ARACOR, Hi-Z, ADA, Advanced Fuel Research, Yardney, Aerodyne Research, Systran. The multiple winners already had a total of about 1500 SBIR awards including at least 430 Phase 2s. One explanation for DOE's attitude is that its mission is to put money into fantasy and uneconomic energy ideas to keep them alive until their economics shifts. That means years of grinding away at incremental advances, and who better to do that than the companies with the well-ground experience. Does DOE SBIR Work? Not much convincing evidence. The only claims that DOE makes are that awardees have achieved nearly $1B in Phase III funding, three times the DOE investment in these projects, and that 70% of Phase II projects have led to Phase III funding; two-thirds of these projects contributed to sales of new products or services. But such blather is typical for SBIR agencies, and sadly even for SBIR's advocates. Only MDA ever made any serious effort to measure economic return, and they have now stopped such ungovernmental foolery. What, for example, would have happened without SBIR in the small business sector of DOE R&D. What kind of economic ROI accrued to the private sector? Etc.

Regional growth and R&D go together, but which the cause and which the effect? A lot of state legislatures want to know. Marios Zachariadis of LSU finds that Using two-digit industry data from U.S. manufacturing during the period 1 963-1 988, I show a positive impact of R&D intensity on innovation, technological progress and economic growth. More specifically: R&D intensity has a positive impact on the rate of patenting, the rate of patenting has a positive effect on technological progress, and, finally, technological progress has a one-to-one relation with the growth rate of output per worker. ... Overall, we reject the null hypothesis that economic growth is not induced by R&D in steady state in favor of the Schumpeterian endogenous growth framework  Read the full economics mumbo-jumbo R&D, Innovation, and Technological Progress: A Test of the Schumpeterian Framework without Scale EffectsT

he Navy published its first list of Phase 1 winners from the summer SBIR. Looks like the usual suspects: Foster-Miller, Physical Optics, CFD, Intelligent Automation, Mission Research winning multiples. Titles and abstracts a lot later in the DOD data base. You want to do that too? Start phoning, and phoning, and phoning. 

Barring Aliens May Be Unconstitutional. The rules against SBIR companies using aliens on SBIR projects, especially for DOD, may be unconstitutional.  A federal judge in California ruled that their government could not constitutionally bar aliens from airport security jobs solely on their non-citizen status.  Don't, however, expect the government to relax its rules, especially on a single judge ruling in the famously liberal Ninth Circuit. The political right will be trenchant in its "America for Americans" stance and will denounce the ruling as endangering American security, with screams to impeach the judge for treason. If you really want to use an alien for your SBIR project, consult your lawyer about how far this ruling goes. 

Apathy or Lobbying? With a venture capitalist and a technology entrepreneur moving into the governors' offices of Massachusetts and New Hampshire, will the region's tech community get more involved in politics?  It sure doesn't seem possible for the community to be any less involved. While individual members may espouse their own points of view, the tech sector as a whole has long been a card-carrying member of the Apathetic Party.  ... TechNet  (Silicon Valley based) has had a difficult time building momentum in New England. The local ''node,'' as TechNet calls its chapters, went into hibernation for nearly a year. ...  the bipartisan group has 10 members whose corporate headquarters are in New England - down from about 18 in its earlier incarnation - and hopes to grow to 30 members eventually. TechNet expects to hold fund-raisers for Republican and Democratic candidates beginning next year for the 2004 election cycle. [Scott Kirsner, Boston Globe, 11/18/02]  SBIR advocates and junkies have their own lobbying organization - SBTC to keep the $1B a year flowing. 

The Dept of Transportation awarded 12 Phase 1 SBIRs from 202 proposals. maybe they need to clarify their intentions in the solicitation. Of the 12, two were old standbys Foster-Miller and Creare. In what should be a hot topic, Shipping Container Integrity Monitoring System, no awards. 

Right now, In-Q-Tel's model is to back start-ups that get enough business from private corporations that they are self-sustainable. But if the recession hurts them, In-Q-Tel can take advantage of the alliances and merge them into bigger companies with staying power. `...   There's a new urgency within the CIA to find technology that makes sense of all the unstructured data floating around on the Internet and elsewhere. The agency can't train analysts quickly enough. .....  it's been easier than Louie thought. He isn't even pounding the pavement. Rather, big-name venture capitalists like John Doerr at Kleiner Perkins  are coming to him. ...  In-Q-Tel is 2 years old, but other agencies are already jealous.  The 2003 defense bill has allotted the Army $25 million to create a venture firm to focus on power and energy technology for soldiers in the field. The Navy is also looking at the model. [Mercury News, Nov 17,02]   Indeed, the Army has formed a $24M venture fund - Rosettex Technology & Ventures GroupTM , a joint business venture of SRI International and Sarnoff Corporation -  to invest in prototype advanced technologies and systems in military communications, command and control, intelligence, surveillance, and reconnaissance applications.  And last winter Rosettex made a potentially $200M deal with DOD's National Imagery and Mapping Agency (NIMA) to discover, initiate, influence and accelerate commercial and dual-use technology development to meet national security and defense needs. 
CalTIP Evaluated. California produced the same kind of vacuous evaluation of its CalTIP as the federal SBIR typically produces, from a survey of the beneficiaries (none of whom I imagine had a discouraging word). 1) a third launched a new product within 25 months; 2) each created more than five "sustainable" jobs (money pays people); 3) a third said "CalTIP funds were instrumental in raising needed funds from other sources, including Federal research and development awards and venture capital investments (a state mining the federal politicians);  4) 75%  would have been terminated or significantly impeded without CalTIP funds ( I wonder why); 5) 90%  survived well beyond the grant, and most of those not surviving (10%) are acquired by or merged with other companies (sustaining the living dead?)  Measurable benefits to California? Bragging rights for the politicians. [facts from [SSTI, Nov 15]  No independent data collection, asking beneficiaries whether they liked it, no economic yardsticks, and no control  group for comparison. Need your company evaluated, Mr Lay? Meanwhile, the San Diego Regional Technology Alliance evaluated its part of the CalTIP program. It found (by survey)  that 38 recipients of $113M from 1993 to 2001 attracted  $700M outside equity investments in public and private funding (presumably including SBIR) and generated 160% return in the form of increased state tax revenue, and CalTIP companies created over 2,200 new jobs. The total value of CalTIP projects in San Diego is estimated at $113M. [SSTI, Nov 15,02]


Before you make a claim in a proposal that you are saving the environment with your technology, get a full accounting of what your technology costs. For example, A 2-g, 32-megabyte dynamic random access memory (DRAM) chip requires 1.6 kg of secondary fossil fuels and 72 g of chemical inputs for production and use, as well as 32 kg of water during the production phase. This extraordinary ratio of input to output reflects the high degree of materials purity needed as well as the complex organization within the chip, both of which levy entropic tariffs.  [Environ. Sci. Technol. 10.1021/es205643o (2002), quoted in Science, Nov 8].  Or, unless you are proposing to EPA or ethically stiff, go ahead and make any claim you want; the others will not check your environmental accounting. 

Cyber-Pork. The dangers of the cyber–pork barrel should be obvious. Washington subsidy and entitlement programs typically have a never-ending lifespan and often open the door to increased federal regulatory intervention. That kind of political meddling could also displace private-sector investment efforts or result in technological favoritism by promoting one set of technologies or providers over another. Moreover, subsidy programs are unnecessary in an environment of technological competition, characterized by both proliferating consumer choices and uncertain market demand for new services. [Thierer, Crews, Pearson, CATO Institute Policy Analysis 457, Oct 28, 02]

Lost in Space? With tax cuts and rising military spending a certainty in 2003, lawmakers looking to trim the budget are gazing longingly at NASA's $15 billion allocation. Many are becoming convinced that the space agency is not offering enough value for its taxpayer dollars, especially with huge cost overruns on the space station. [Business Week, Nov 25]
Would they actually gut NASA? Not as long as the California Congressional delegation was still breathing, all 55 of them.  The Republicans save California?  Programs never die, and plenty of California businesses contribute to Republican causes. The first Bush took a hit in the 1992 election when Republicans dragged their feet about "defense conversion". W remembers. 

GAO studied federal tech transfer without a particular finding that it was either better or worse than expected, mostly because it has no benchmark for a standard. Intellectual Property: Federal Agency Efforts in Transferring and Reporting New Technology (GAO-03-47) can be downloaded at:

In-Q-Tel got about 500 inquiries a year from entrepreneurs before September 2001 and 2,000 since . "The firm" has now done more than 30 deals to bring new technology into CIA (also "the firm") [Wall Street Journal, Nov 14] which tends to resist new ideas.    The soon to be Homeland Security Department, with its nervous politically vulnerable employees, could adopt such an entrepreneurial stance for a small part of its R&D to get around the excessively conservative R&D program likely to develop. Its SBIR program could also be a good seedbed for innovation if it can avoid falling into the same well that swallowed MDA's innovative spirit.  

Where's the Money, Guv? Fourteen of the 24 new governors are already talking grand new plans to build tech-based economies. Even Alaska (Stevens can get them unlimited money from his Senate Appropriations chair) . [SSTI, Nov 8] But where will the others get the money when state tax revenues are plummeting? Don't matter much, my new broom gotta make the right noises, and tech is hot stuff around which to wish a state economy.

the Advanced Technology Program, a Clinton-era industrial-policy program surviving and thriving in the Bush Department of Commerce, is busy doling out some $184M a year to entrepreneurs - or should they be called "bureaupreneurs." [Jim Pinkerton, TechCentralStation, Oct 31] Actually ATP goes back to Bush I who swallowed it from the Congressional Democrats because he didn't care enough about free-market theory to veto it. Pinkerton should know the facts since he was in the Bush I White House as a political advisor.

Politics Trumps Efficiency. Just before next week's voting, the administration shows that politics matter more than government efficiency as it says it prefers preferences for small business contracts over the efficiency of bundling. Of course the proof is in the eating and if the administration follows form, it will talk much while doing nothing to make the policy work.

Cut Taxes and Send Us More Money. Universities at the trough: earmarks are growing. 27% more institutions, 35% more individual earmarks, 10% more dollar value of a total of $1.8B this year, says the Chronicle of Higher Education. The politicians and the universities don't trust the merit judgments of the federal R&D agencies because they see concentration in the Stanfords and MITs at the expense of the flyover states.

Incubators for the Big Apple. New York will sink $11M into several incubators in Brooklyn and Queens, including a SUNY Downstate Advanced Biotechnology Incubator in Brooklyn for 32 new start-up companies, Also Bronx, Hunter College, CUNY, Harlem, Lower Manhattan, Then more incubators planned City College (photonics), Hunter College (biotechnology), the College of Staten Island (polymer science) and the New York City College of Technology (information services and communications). More information [SSTI, Oct 2,02] If you need something grander, like 60 stories of reflective glass, the John Hancock Tower in Boston is on the market and windows no longer fall out.

More Loans and More Defaults. The SBA says it made a record number of loans in Minnesota in 2002 as more optimists (or desperatists) started businesses. Unhappily, the loan liquidation arte shot up the 5.5% from a typical 3.3%. Need a hand up? [Minneapolis Star Tribune, Oct 24,02]

The Ohio Technology Action Fund seeks proposals in Early Stage Capital Formation, Technology Commercialization, and Fuel Cells. Awards up to $1M each with variable matching funding. Signal your intent to apply by October 31. Outsiders welcome but winner must maintain a significant presence in Ohio while spending the money. Ohio is an industrial heartland state with a big varied economy,

Former DOD Small Business Head Indicted. Robert Neal, who headed the DOD SADBU 1996-2001, and Francis Jones, his executive assistant were charged with extortion and bribery for allegedly demanding payoffs, prostitutes, and expensive watches worth $1M in exchange for government contracts. Probably not SBIR contracts since SADBU does not pick SBIR winners; it just oversees DOD SBIR policy. The federal investigators said they laundered the payments through a sham company or a secret trust in Liechtenstein. Full Washington Post story

No company too rich. The ATP announces $101M of new projects, 10% of which goes to General Electric the world's highest market cap company. No company is too rich for a government handout even by a free-market administration.

States Do It to Themselves Leslie McGranahan's report Unprepared for Boom or Bust: Understanding the Current State Fiscal Crisis says that states let politics override fiscal sanity. Mostly because they use good times to cut taxes while never cutting spending. The article in Economic Perspectives, a publication of the Federal Reserve Bank of Chicago. Too soon reality intrudes when the economic cycle swings down again (no one has eliminated business cycles yet) taking tax revenues down with them. McGranahan says states can use more flexible approaches: bigger rainy day funds, tax cuts by tax rebates and refunds rather than reductions in rates, don't rely on the federal government bail out (why not, what's deficit spending for?) The complete article at:

university R&D expenditures are not significantly related to economic growth, once one has controlled for the birth rate in the previous period. However, the variations in the birth rates, which are affected by R&D spending, are strongly associated with the growth rates at the LMA level. Imagine that, send in money and someone will spend it. SBA sponsored a study which found that University expenditures on research and development promote higher new firm birth rates. The glue that holds these clusters together is the effort universities are putting into mechanisms to promote commercialization of the inventions that emerge from their laboratories. On the most superficial level, if government borrows or taxes to raise funds to spend on R&D in universities, some of the money will encourage entrepreneurs to start firms to feed on it. What the study does not say is whether any net economic gain resulted from the new firms. Certainly the results from SBIR prove nothing about economic benefit with or without any university contribution. Still, the money for small firms will go on since there are old studies that show more innovation under some circumstances, such as a finding by The Futures Group that small firms actually innovate at a rate of 1.24 to 2.38 times that of large firms.Read the full Futures Group report. But the fact that small firms are more efficient at innovating says nothing about whether government programs like SBIR are the right way or the wrong way to invest in start-up firms. Oh, never mind, the political fix is in and it's another election year for kissing babies Read the study by Kirchoff, Armington, Hasan, and Newbert.

Lotsa Military SBIR  
(Oct 10) The now agreed Defense Appropriation has lots of money for R&D that will mean an automatic pile for SBIR. MDA gets another $7B+ (heavy R&D component) and DARPA (all R&D) a 17% increase. Polish up your proposals for January 15.

You Want Efficient Government?. politicians from both parties tripping over themselves to demonstrate their devotion to the nation's entrepreneurs. (especially at election time) .... one report found smaller firms losing ground in efforts to win their share of federal procurement contracts, ... The simple answer may be that the powerful market forces of economy and efficiency are moving faster than government proponents of small business can react ... Why? Efficiency in government,.. with fewer purchasing officials and demands they become more efficient, agencies have been buying in bigger amounts from fewer suppliers. [JEFF BAILEY, THE WALL STREET JOURNAL, Oct 8]

Not Very New SBIR Directive.
(Oct 7) SBA re-published its SBIR Policy Directive, available from SBIR Alert Service. The most controversial proposed change was NOT adopted: none of the money can be re-directed back to the sponsoring agency through sub-contracts. The other proposed innovation, that STTR and SBIR be combined, was also canceled. For the policy wonks, the entire directive and SBA's comments on the comments are available. Thanks to Rick Shindell and SBIR Gateway for keeping up with the debate and publishing the results. Note: If you want to see the policy in the future, download it now to your local computer. Do not depend on the kindness of the SBA to make it publicly available.

A Bigger Slice of Everything. If some is good, twice as much is better. The politicians support doubling NSF (and free candy for all good children) provided that money comes from the sky and that there is a good formula for distributing the money - like the politicians will decide every grant. The Senators from Montana will not support doubling the research tax take from their citizens to support more professors and research labs at Harvard. The head of NSF has a predictable position - national competititon of which I am the judge. With the economy in a funk and a growing demand for military and security affairs and tax cuts for the tortured upper class, there is simply no money for such grand schemes.

the Department of Energy turns 25 years old this week. And despite an annual budget of $18 billion, 20,000 full-time employees, and 150,000 contract employees, smaller toilet bowls are probably the most memorable thing that's come out of the DOE that's had a significant impact on your life. And I'd venture to guess that most of us don't see smaller toilet bowls as a positive. Today, this is the public face of American energy. Inspiring, isn't he? Screams "energy!" He is Spencer Abraham, the current U.S. Secretary of the Department of Energy. He's also probably the best example in modern government of how federal bureaucracy can swallow a man, principles and all, into its behemoth belly of red tape, white paper and do-goodism. [TechCentralStation, Oct 4,02]


Army Still Seeking Knowledge
(Sep 26) No risk please, we're soldiers. The Army's annual list of Phase 2 SBIR winners shows that it still treasures knowldge and predictability over innovation.Old hands know how to work that system: Physical Optics Corporation (6 awards), Foster-Miller (4), Cybernet Systems (3), EIC Laboratories (3), Coherent Technologies (2), CHI Systems (2), Materials & Electrochemical Research (2), Scientific Systems Company (2), Scientific Applications (2). Scientific Research (2), Charles River Analytics (2). Those comnpanies have won about 2000 DOD SBIR awards. So far, only titles are available as clues as to what is doing. Later, much later, the abstracts will appear in DOD's SBIR data base. If you are thinking of proposing SBIR to the Army, plan first and foremost for safely predictable results. Do not presume that the Army cares whether your company lives or dies after your final report is in. It will have your technology, and you could be a mere inconvenience in its plan to use that technology.
The Predictable Titles A Stochastic Neural Network Model for Missile Reliability, Tribological Phenomenon for Advanced Diesel Engines - Engine Modeling, Consistent Rotorcraft Dynamics Models for Life Cycle Simulation Support, Radar Signature Prediction Code, SituSpace, Space Battlespace Awareness Application, Universal Information Access for the Mobile Warrior: BCL Knowledge Management Center, Autonomous Intelligent Document Analysis System, Virtual Simulation Tools for Cultural Familiarization, Extended, Transient Rocket Exhaust Plume Modeling, Computational Tools for Stress and Damage Analysis of Laminated Composite Structures, Optical Projectile Identification and Inventory System, Theoretical Prediction, Synthesis and Characterization of RSA materials, Thermal Management for the 21st Century, The PGREDS Simulation Toolkit for Population Modeling, Training Simulator for Thoracentesis, Detection, Tracking and Classification of Multiple Targets using Advanced Beamforming and Classification Methods, Distributed Agent-Based Information Dissemination System, Rigorous Real-Time Image Intesifier (NVG) Simulation Design, Web-based Techniques for Remote Scientific Visualization, A Critical Incident Network for Computer Supported Collaborative Leadership Learning, C2I Surrogate Behaviors using Subsumption Architecture and Critic-based Learning, Control of Multiple Unmanned Systems , Network Centric Interoperability, Optimal Design of Lightweight and High-Performance Structures for Future Fuel-Efficient Army and Commercial Ground Vehicles, Radar Signature Prediction, Intent Inferencing for UAV Control, Probabilistic Design Tool for Small Turbine Engine High Cycle Fatigue (HCF) Life, Using High Resolution Multispectral and/or Hyperspectral Imagery to Improve Digital Land Cover Classification From Low Resolution Multispectral Imagery Over Large Areas, Mobile, Minaturized, Field Deployable Pupillometer to Assess Fitness for Duty, Acoustic Canopy MASINT System, Reliability Analysis and Project Tracking Environment, Land Warrior Synthetic Environment Enhancements for Improved Targeting, A Component-Based Framework for Fast, Low-Cost System Design, Integration, and Life-Cycle Maintenance of Automated Resupply Vehicles, Simulator Monitor and Control (SMAC) System, Wireless Communications-Coverage Software (WC2S) for PCS Network Planning Involving Hills, Foliage, Urban, and Mixed Propagation Paths, Energy Efficient Routing and Networking in DoD Sensor Networks, Active Filtering and Adaptive Reconfiguration Technologies for Real Time Intrusion Detection in High Speed Data Streams, Command and Control Training in FCS Units with Manned and Robotic Elements, Computational ElectroMagnetics Analysis Assistant, A Preliminary Design Tool for Shrouded-Fans, Exploiting Evolutionary Algorithms for Improved Automatic Target Recognition, An Integrated Anthropometrics, Vehicle and Biodynamics Software Tool, Road and Terrain Characterization for Vehicle Dynamics and Mobility Analysis, Exhaust Impingement Effects Predictive Capability for Future Combat Systems (FCS) and the 21st Century Truck, Distributed Repositories of Highly Expressive, Reusable, and Reasonable Ontologies for Web-based SNE Fusion, Military Grade, Field Deployable Biometric Identification System, Dynamic Sand Table.

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If Sematech Was Good, ... In 1984, most of America's leading semiconductor companies were driven out of the market for memory chips, . In 1987, the Defense Science Board [saw] military disaster, because Japan might so dominate the industry that it could prevent the US from making the best military computers. .... With $100M a year from the DOD and another $100M from 14 US chip companies, a semiconductor research consortium called Sematech came into being . ... 1993 was the high-water mark of an American infatuation with industrial policy. The new Clinton administration never got a chance to "build a bridge to the 21st century." Government investment is futility . ... its procurement is shot through with duplication and waste, and its specifications are carefully designed to exclude unfamiliar ideas. .... Investment is best left to those unsentimental investors who seek to make money, rather than to advance the national interest. As a hard-headed, though possibly apocryphal, venture capitalist may have said, "I never invest with a scientist in love with his ideas; I only invest with a scientist who is in love with money." ... International Sematech suddenly turned to New York to build its second research facility on the Albany campus of SUNY, using $210M of state money. The Hudson Valley is not exactly Silicon Valley East, and SUNY Albany is not exactly Stanford University. Is Sematech retreating to its roots as an instrument of industrial policy? T.... Gov. Pataki hailed the advent of Sematech North. It would be "a magnet to attract the global semiconductor industry to Albany and an engine for job creation in upstate New York," the governor declared, sounding like a politician running for re-election. ... Sematech and the State of New York would be wise to treat the market with more respect. [Tom Donlan, Barron's, Sep 23]
Donlan implies that government "investment" in technology, or by extension to anything else, is politics masquerading as virtue. As indeed, the SBIR experience has proved. Neither the advocates nor the administrators have shown, or I doubt ever could show, that SBIR did anything that would not have happened anyway and without distortion of the federal agency R&D programs. A billion a year in a facade that at its best only eased access to some companies to the federal larder. And since there is no restriction on how many times a company can drink from the well, the prizes go to the companies who learn to play the game.

A Milken Institute report says that MA, CO, and CA are the best positioned states for the technology-led information age. California's success at attracting scientific and technology talent from other regions of the country help offset a "comparative weakness" in the human capital composite. The next seven are MD, VA, WA, NJ, CT, UT, MN. The full 119-page report for California

Hooray for ATP, Say the Beneficiaries. 86% percent of 673 organizations in 347 ATP projects say they are ahead in their R&D cycle as a result of ATP funding. 53% said that they are ahead by one to three years. 0% said the government wasted its money paying them to do R&D, the same 0% that thinks government should avoid corporate welfare. Two supporters and supportees would be Dow and IBM who shared a US National Medal of Technology for innovation in integrated circuits and an ATP award.

Andy Wells, who started his business in 1985 with one manual lathe in his Bemidji garage, has been named the Minnesota Minority Small Business Person of 2002 by the SBA. Today, Wells Technology is a state-of-the-art precision machine shop with 20 employees, producing 7,000-plus products for the U.S. military, aerospace, electronic and computer industries. Wells, a member of the Red Lake Indian Tribe, started the business with the idea of creating more local jobs. [Minneapolis Star Tribune, Sep 20] Bemidji is the First City on the Mississippi which flows north into Lake Bemidji and then east. The Slovenian who started his swim down the length of the Mississippi at nearby Lake Itasca swam through Bemidji.


Dawnbreaker says it will be running a Commercialization Planning Program for NSF Phase I Jan 2002 winners. In the usual bureaucratic blather that government sponsors love, The overall objective of this initiative is to improve the business acumen of Phase 1 grantees via a level of effort commensurate with the duration of the Phase I initiative. Improvement in (1) the understanding of and (2) attention to commercialization will be reflected in an improvement in the quality of the Commercialization Plans companies submit with their Phase II proposals, as well as greater participation in the Phase IIB Enhancement Program. Which raises the competitive question of whether participants will get an advantage for Phase 2 consideration. Just what is NSF's objective? Dawnbreaker is a private firm specializing in teaching small high-tech firms some basics of commercialization. It claims that half its 400 clients got private sector financing within 18 months after the business plan help. How much money and with what return is unspoken. Like the government's attitude, it's safer not to make any economic claims for SBIR.

It's part of the ambivalence of Silicon Valley that we don't like government intrusion until it benefits us. Down deep, we're libertarians willing to change our spots if the price is right. ... the quiet hype surrounding the appearance of Bush administration cybersecurity adviser Richard Clarke . ... Because the government is promising to spend more money, maybe a lot more, valley firms are embracing the notion of selling the feds more of their wares. ... a skeptical response. ... The checks are good. But there are a lot of reasons for investors to maintain a healthy skepticism toward the notion that government contracts will suddenly reverse the ebb tide for high-tech spending. much of the administration's initiative consists of cheerleading. ... lean heavily on education and public-private partnerships. The language is punctuated with words like ``empower'' and ``encourage.'' This reflects the central dilemma of any big security initiative. Silicon Valley companies would like the government to require someone else to buy their stuff. They don't want to be required to buy anyone else's stuff. ... Clarke has talked about increasing security spending from $2.9B to $4.5B in 2003 . ... But government is a lumbering beast. [Scott Herhold, San Jose Mercury News, Sep 16,02]

Seed Too Dear In Virginia's political battle to keep the good-times Republican tax cuts, it has to cut some public services in some way that no voter is least harmed. One such cut on the table is the Center for Innovative Technology which would naturally have trouble proving its worth beyond a general feeling that the state ought to be doing something to encourage high-tech business. One service that might evaporate would be paying companies to hire consultants to prepare for SBIR proposing.

Start-Up Money in Minnesota. The Minnesota Seed Capital Network (MSCN) is accepting business plans from Minnesota companies seeking seed capital of $250K to $2500K. Additional information and a copy of the MSCN application are available online at is administered by Minnesota Project Innovation Inc., a private, nonprofit corporation that assists Minnesota companies with funding. Meanwhile, The Minnesota Venture Capital Association has launched a Web site for local fledgling businesses. The site,, includes information and links to help entrepreneurs in search of funding and investors looking for business opportunities. [Minneapolis Star Tribune, Sep 11,02]

The Alabama has an e-mentoring program for SBIR hopefuls where experienced entrepreneurs and SBIR veterans do web-based strategy coaching.

Illinois got up a $60M Tech Fund to sink into Illinois VC firms for investing in Illinois companies. The phenomenon of politicians putting tax money into risky private ventures has spread to many states. American politicians just cannot sit and do nothing, regardless of their partisan attitudes toward the size and reach of government. At least many do it with private entities making the decisions with politics removed (in theory). Unlike the national pretense of SBIR, the states will demand evaluation since they appropriate the funds directly. National politicians avoid the appropriation pain and thus avoid any pressure for demonstrable results beyond political handouts by simply taxing already appropriated R&D funds and letting the government agents ignore any economics of investing.Just imagine what SBIR would be if the money had to be appropriated every year and its advocates and the federal agencies had to defend it!

PCAST advocates "improve funding levels for physical sciences and certain areas of engineering" for FY 2004 to remedy overemphasis on life sciences. Those growing old politicians fear diseases. In a drafted letter to Bush, PCAST raises concern for how federal R&D funding, while fundamentally responsible for 40% of the nation's patent activity, has declined as a percentage of GDP to its lowest level in more than 25 years. Private R&D does not adequately replace the federal investment, PCAST notes. The draft letter and accompanying report [SSTI, Sep 6,02]

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Every Region Wants to be the Best Principles: We seek a regional, integrated and cooperative approach to creating an environment where companies and entrepreneurs in the region can take advantage of market opportunities for more innovative, cleaner and energy efficient technologies. Therefore, we believe the long-term success of the Collaborative is based on two principles: collaboration and shared vision. We commit the Collaborative to finding the common, compelling programs and projects to achieve its purpose and to an environment of support and collaboration where all participants have a role. So says the Northwest Energy Technology Collaborative where the main power source is water falling over man-made dams and the main natural asset is a lot of rain from clouds wrung out by the Cascade Mountains. NWETC says its goal is to is to accelerate the emergence and growth of the energy technology industry in the Pacific Northwest Must be an election year when incumbents spew platitudes. Congress made the same noises in 1982, 1992, and 2000 as it made and re-made SBIR. Then it handed the management to the bureaucrats who had neither desire nor incentive to pursue the lofty national goals. The result has been the same muddle that is likely to happen to the NWETC as all the players pursue their own interests and the politicians cannot find tax money to support what has to be done to create a garden for innovative technology.

Homeland Security R&D. A draft report from the President's Council of Advisors on Science and Technology (PCAST) recommends the Department for Homeland Security include a centralized office for research and technology development and the senior-level position of undersecretary for science and technology, according to several published reports. [LARTA, Aug 12] Someday the organizing will settle down and Homeland will have an SBIR program of some sorts, even if run by a department of political appointees in a spoils system. After all, political appointees can squander the SBIR opportunity as well as career civil servants.

CRADAs Sound Better then They Work says GAO (Congress's watchdog). Why are CRADAs down and does anyone care? GAO says that DOE's CRADA decline comes from many reasons, including lack of dedicated funding, uncertainty of funding, and lack of commitment from the DOE for technology partnerships among other barriers. The report includes several statistical tables showing tech transfer activities at the 12 labs for the past decade. [Technology Transfer: Several Factors Have Led to a Decline in Partnerships at DOE’s Laboratories (GAO-02-465) April 2002] Probably the main reason is that no bureaucrat gets much from the deal. They can better spend their energy fighting for more direct budget money for in that game, money is power.

Carolina Dreamin' The pseudo-republic of North Carolina will get into the investment business by using $85M of its tobacco settlement (after centuries of profit from selling the leaf) for the long-term economic advancement of North Carolina in bio-tech. Golden LEAF sounds like one of those fads that lure politicians. They expect (hope) that it will stimulate at least $350M in new private and federal funding biotech activity in the state. Maybe they ought to buy shares in a global bio-tech mutual fund instead of looking to home cooking with geographic limitations on the needed co-investors and companies. It might attract the federal funding by having the politicians earmark federal R&D for political purposes and then claim investment success. [facts from SSTI, Aug 23] More information is available at:

BIIIG Bio-Terror SBIRs
(Aug 30) Financial Bio-Panic. NIH has exploded part of its SBIR into giant grants so it can spend the bio-terror to death. NIAID is soliciting Phase 1 SBIR and STTR proposals Phase I applications for two years and $1M with Phase 2 being $6M over three years. Don't worry, proposers will find a way to imagine such big projects as long as the government is paying. Details of the bonanza. Such an approach does relieve one NIH problem - how to spend all that boatload of money on minuscule projects like the standard SBIR. Once that door is opened, look for the other agencies to follow suit for administrative convenience regardless of what rationale they spout.

Military Start-Up Space. The Army's Watervliet Arsenal, on the Hudson River, will spend $2M to offer empty space to small businesses as part of a $7.5M DOD program to help arsenals throughout the nation market their unused spaces to private entities. Watervliet got $2M of the money. [Troy Record, Aug 10] The politicians of course took credit for getting the Army to release the money and for hopefully bringing significant new investment to the Capital District. The politicians did not mention the economic loss to private real estate interests. Any business wanting the free lunch should remember that military folks can be downright unreasonable when they decide that the military situation demands more security or some other public "need". They do have the guns to enforce whatever they want to do.


The Pentagon and other government agencies do play a role in directing and funding technology. But the market, with its powerful profit incentive, can take what government does and make a lot more out of it- creating new industries and jobs and adding to economic growth. For example, U.S. GPS producers employ more than 23,000 people and will ship $4.7B in equipment this year.[11] The computer industry, descended from ENIAC, has produced a huge economic impact, with sales of 30M units a year. [WM Cox, chief economist Dallas Federal Reserve, J/A02] The VCs claim that their companies contributed $1.1T or 11%, to the US GDP in 2000. [recent NVCA report] The government makes no claim for SBIR's contribution because it dodges every attempt at economic performance measures for SBIR.

Trouble by the River. The Virginia Center for Innovative Technology, which is under pressure to take less tax money from the strapped state legislature, suffered the sudden and unexplained resignation of its director, Anne Armstrong. Such organizations sound great on paper in a competitive high-tech world but the politicians want to see immediate and great results that help them in the next election. Actually, given the politicians' penchant to exaggerate anyway, they might as well put in the money and then make any claim they want. Like claims for SBIR, when there are no good data, any claim will do.

The snoops open their own advisory service. A former OIG investigator joins a legal editor to publish SBIR Compliance Report and News which tells how to avoid getting caught breaking SBIR laws. The sample issue answers, among others, the question: What if I disclose and two SBIR agencies still choose to award me money? Am I liable? The website has a discussion forum.

California wants to save its human services budget by ditching at least part of its technology investment CalTIP. From its past investments of $32M, the state has harvested a return of 127% in tax revenue and private sector investment over $200M, says LARTA, Aug 5. But entrepreneurs won't riot in the streets when things get tough. At the federal level, the government has no such clear vision of investing in entrepreneurs where SBIR's billion a year demands no matching investment and spends most of its billion on incremental R&D. There all the politicians demand is that money be spent on a target political class regardless of outcomes which it doesn't even measure.

Looking for an incubator? You may not have heard about Memphis TN or New Britain CT. EmergeMemphis, the focal point for entrepreneurial activity in the Mid-South, is a progressive organization designed to support entrepreneurial efforts and stimulate economic expansion. Currently, more than sixteen companies reside at EmergeMemphis’ newly renovated headquarters at the corner of GE Patterson and Tennessee Streets. The Connecticut Enterprise Center is a small business "incubator" -- a facility in which a variety of new and growing businesses operate; sharing services, equipment and experiences with other startup entrepreneurs.

The army grows firms that may wire the battlefield. The Army may actually be getting the picture: innovation comes from the outside. With its typical last to the party approach, The U.S. Department of Defense is finding that the center of innovation in information technology has shifted dramatically, with small, private companies often setting the pace. The Army is running a trial incubator, The Applied Communications and Information Networking project, in broken-down Camden NJ that hopes to help the military out of an innovation dead end created by 50 years of reliance on big defense contractors. entrepreneur-in-residence Lou Bucelli argues that the army project offers its startups a safer path to market. With a near-term customer in the U.S. military, as well as continued support while they adapt their products for the commercial marketplace. [story from Herb Brody, MIT Technology Review, J/A 02] Good try, Army, it's about time, especially after 15 years of shoveling tons of SBIR money to pliant R&D firms for short range support. Actually, there isn't much evidence that the Army isn't still blind to the potential of starting new technology with SBIR awards tuned to private markets. There is always hope. The Army has dramatically shifted its battle approach to high-tech. Just have a look at the news photos of those wired warriors in Afghanistan. And the Army is still considering, much to the consternation of the bureaucratic machine, a copy of In-Q-Tel for venture funding of companies with new ideas.

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the defence industry turned into a kind of ghetto, despite considerable efforts to make doing business with the Pentagon easier and less bureaucratic. Barriers to entry were removed in the hope of turning defence into something more like a normal business, but instead of an influx of new blood, a mass exodus followed. IBM, GM, Ford, Chrysler, GE (except engines) and Texas Instruments. As Merrill Lynch's Byron Callan put it, "The defence industry became detached from the rest of the economy." ... What remains to be seen over the next decade is whether the ghetto model will survive, or whether defence will eventually move closer to commercial business. The more it does, the more global it could get at the level of the second- or third-tier suppliers, who make components or equipment for the prime contractors. [ The Economist, July 20] According to Mr Krepinevich at the Centre for Strategy and Budgetary Assessment, the American government will have to improve its policy towards the defence industrial base if America is not to lose its technical lead. He thinks too much of what goes under the name of R&D is really devoted to the engineering and manufacturing development of incoming products. That may provide a nice cash cushion for companies, but it means they do little innovative research of the sort needed to develop entirely new products. He would like the Defence Department to take a hard look at future requirements to see which areas of technology could best meet them. Money for this could be found by chopping expenditure on mature technologies where extra R&D produces marginal gains.[ The Economist, July 20]
Meanwhile, over on the other side of the tracks where the little businesses live, the ghetto is being reinforced by the DOD's attitude toward its small business programs, especially SBIR. Instead of encouraging commercializing companies, it sends all its SBIR money to pliant captive companies who will do whatever the DOD will spend money for. Neither innovation nor commercialization valued.

Conservative legislators have conveniently forgotten the economists' admonition that if a technology is economically competitive, no public subsidies are necessary, and if a technology is not economically competitive, no amount of public subsidy or special favors will make it so. [Carl Pope and Ed Crane, Washington Post, July 30] Does your technology qualify for public subsidy that would benefit only your company and never bring the technology to market acceptance?


The defence industry should come out of its ghetto and join the outside world. The Economist's (July 20) annual survey of the defence industry notes that the so-called Revolution in Military Affairs (RMA) which usually emerges from the underdog. It notes the 70% fall in procurement and the 25% fall in R&D since the peak of the cold war, and contrasts this with an explosion in R&D and technical advances in commercial industries such as electronics and IT. In the commercial sector, innovation rolls out new products in months, whereas in the bureaucratic world of defence it takes up to 18 years for a new weapons system to become reality. When the Clinton administration tried to confront defense autarky with programs like the Technology Development Program it was rebuffed by the combination of porky Congress and porky DOD and the military/industry complex was restored to power. No revolution on their watch was going to start with military funds even if the Defense Science Board said it should. Projects like Global Hawk somehow exploited the commercial technology to put the gung-ho AF pilot mafia into remote ground control stations flying a tiny plane by remote control. They hate it.Thta's worse than flying alow and slow A-10. The high-g thrill is gone. The best hope for innovation in defence, according to a recent RAND report by Mark Lorell, Julia Lowell and others, is through Commercial-Military Integration (CMI). The authors think that even without a deliberate Pentagon strategy, CMI will advance apace because of the sheer speed of technical advances in commercial sectors such as avionics and microwave devices. DOD actually has a vehicle in place to invest 3% of its extra-mural R&D in new ideas that could feed the RMA. SBIR. But with the reversion of MDA to conventional R&D, the opportunity goes unused. SBIR has become merely a small business version, for the ash-and-trash jobs, of the rest of the DOD R&D program. DOD thinks if it can stifle innovation in SBIR, it can thereby stifle those pesky inventors and developers who outflank the military ideas of organization and dogma.

Consider Indiana. Although not many firms go shopping for a state, those who do might consider Indiana. Bogged down by the collapse of the steel industry around Lake Michigan and the dominance of Eli Lilly in the center, Indiana has never been much of a high tech entrepreneurial hotbed. Now the legislature, like many such legislatures, is trying to build a high-tech business climate. Its 21st Century Research and Technology Fund hangs on despite deep state budgets problems with a 40% cut to $15M per year. Unfortunately for any concept of federalism, Indiana will have to find its own entrepreneurs as the federal SBIR program focuses inward on agency mission support rather than seed funding for future technologies. And there is bound to be less opportunity for federal handouts as the spend-the-surplus-now tax cuts slice federal revenues just as the tax base declines as well. Oh sure, the cut-any-tax-on-the-wealthy (they call it by the euphemism "supply-side") advocates dream of a "dynamic scoring" that raises revenue from a rate cut. Indiana, help thyself if thee knows how. Recycle some of that farm subsidy; make corn into connectors.

Conflict of Interest Control. SBA wants a rule that would restrict small businesses from partnering with DOE national labs on SBIR. SBIR winners could request a waiver to work with government labs, but only after SBIR awardees are selected. It's the same situation that shut the labs out of STTR - conflict of interest in that the government could thereby re-cycle SBIR money right back into the budgets from which it was taken. Just another clue that the agencies hate SBIR.


Chips down; woes up. All the SBIR proposers who want to develop chippy technology for the info-tech market have to argue around the present market conditions where chip demand is down with market saturation disease. The 90s bubble is over. As analysts downgrade chip stocks, the stock price falls and the CEOs panic for their options-derived wealth. Even cell phone inventories are ballooning; doesn't everyone need two?
Things are getting ugly, said Douglas Lee, an analyst at Banc of America Securities."There's blood on the street," he said, adding that the nagging problem is the lack of pickup in consumer demand or spending by corporations.However, he's not too surprised that chip stocks have tanked in recent weeks. Compared with other high-tech sectors, shares of chipmakers were relatively higher during last year's recession."This is the reverse of 2000, when every time we checked, the stocks were going up," Lee said.[Matthew Yi, SF Chronicle, July 3]. Some see optimism anyway with an expected 7% rise in tech spending (predictions are easy to make) next year. Greg Zukerman (Wall Street Journal, June 18) says that tech stocks should be seen as souped up cyclicals. Well, at least they have now have done a half cycle. The acid test of PEG ratio says that either the stock prices will have to drop or the earnings rise substantially over even the most optimistic forecasts.
What should SBIR proposers say in their proposal fantasies? 1) argue the long term economics for the new technology, and 2) rely on most agencies' not caring anyway. The last SBIR decider who cared has been salted away in a barrel to be sure that his infected thought doesn't spread.

What Are Your Proposal's Odds? SSTI reports by state and agency for SBIR Phase 1 awards. Acceptance rates by agency: USDA 19%, Commerce 11%, Defense 17%, Education 14%, Energy 26%, Environment 10%, Health 29%, NASA 18%, NSF 17%, Transportation 13%. Defense was the big funder with 1257 awards and Transportation the tiniest with 16 awards. What should you do with such statistics? Forget them! They merely show how many mediocre proposals are submitted. You should submit with a reasonable chance of winning ONLY IF you have a demonstrably better answer to the problem posed than anyone you know. Not just good, much better. Uncle gets tons of good proposals, but small business has no advantage over big firms for good work. You want to compete in a niche left by the big firms where you have a much better answer than they have. Remember that if your idea is no better than anyone else's, the government would be smart to fund NONE of them. Which happens in some topics, especially narrowly drawn topics.

the industry has come full circle. It was tax dollars that first primed the technology pump. Without money from the Pentagon, Silicon Valley might still be covered with fruit orchards. The Internet was for years a government-funded research project, and some big technology companies would not exist without government contracts. For example, Oracle, the leading database vendor, grew out of a consulting job for the CIA. [The Economist, May 30]

Strong R&D Spending Supports U.S. Economic Growth, NSF Report Shows Dramatic increases in research and development (R&D) investments during the past decade, largely from industry, have contributed to U.S. standing as a global economic power, according to Science and Engineering Indicators 2002, a biennial report of the National Science Board. The U.S. had $244.1 billion in R&D investments in 1999, an increase of nearly $33 billion from 1997, the report shows. In addition, the U.S. accounts for 44 percent of the total worldwide investment in R&D - an amount equal to the combined total of Japan, the United Kingdom, Canada, France, Germany and Italy. [SSTI Weekly Digest, May 29,02]

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Want more jobs and economic growth? What legislator doesn't genuflect at that altar? How to get it? Spend (oh, yes, INVEST) public money since budgets lend themselves to political compromises. Want high value jobs from high-tech industry? Sure, set up a state or local VC fund, especially if private VC investment seems to be declining. It gets votes and funds present jobs, and looks good in the campaign. But says academic VC expert Josh Lerner, it may be useless. Lerner says there is plenty of venture capital waiting for the attractive ROI prospects like the info-tech boom of the 90s. The prolific Lerner's most recent paper Short Term America Revisited? Boom and Bust in the Venture Capital Industry and the Impact on Innovation could tell politicians to think depper about rushing in to fill a VC gap in their electorate. Lerner recommends other public policies that lay the groundwork for VCs, not compete with them:
- investments on "out-of-favor" sectors and niches, like SBIR and In-Q-Tel;
- boost the quality of the demand for VC funds with entrepreneurship programs;
- early-stage federally funded research in universities and laboratories;
- capital gain tax breaks for entrepreneurs;
[story from SSTI, May 24,02]
In another paper at the same NBER seance, Roger Noll opined that The government can attack these potential failures in the capital market by creating programs to investigate new ideas, and then to invest modest amounts in the best ones. Presumably innovators are less fearful that government bureaucrats will steal their inventions, and so will be more willing to share their ideas through a grant application. Venture capitalists can then use the assessments by government officials, as revealed by their grant decisions, as information about which firms have the best ideas and therefore offer the most attractive investment possibilities. In this case, the main value of the award to a firm may not be the cash received from the government, but the effect of having been given an award on the ease with which the firm can attract private investments. Of course, the validity of this argument depends on whether government agencies have the capability and incentive to identify technical ideas that venture capitalists will find attractive, which, for reasons discussed below, may not be the case.


DARPA funding for computer science is probably the single most successful government program in the history of governments - it led to this entire revolution in computing. Yet most of Silicon Valley companies that are the beneficiary of that don't invest in fundamental research. Then you get the ludicrous thing of people in Congress saying they want more relevant research. NO, you should have less relevant research. .. At the government level, you should be swinging for the fences. [Nathan Myhrvold, quoted MIT Technology Review, June 02] Tell that to the people who throw $1B a year of SBIR into conservative, incremental, and relevant projects.And all the Congressional committees who stand aside and let it happen to serve the political interests of conservative, incremental, and relevant research firms who will take the government money for doing whatever the government says. You can bet that one thing that neither the government nor those companies want is an evaluation of what the government got for its billion a year. Only BMDO had the nerve to ask what return it and the nation got, and the man who answered that question was sacked for not being relevant enough.

Matchmaker. The NSF is going to play matchmaker - pair investors with new technology firms. It seeks applications from both sides: SBIR proposals from companies and lists of interests from investors. NSF requires the Phase 2 awardees to have done a laundry list of qualifying: completed NSF SBIR project milestones and NSF reporting requirements on a timely basis, have a proven commercialization track record for non-federally funded projects as well as federally funded projects, have a demonstrated non-SBIR revenue growth over time, have identified key management roles within the company and be assembling a team to take the company forward , have a business plan appropriate for submission to investors, have a definitive plan to protect IP critical to the technology Interesting, but if a company can do all that, why does it need government help with private finance? And why wait until the Phase 2 is over and the company has gone through all the bureaucratic hoops. That's a recipe for a long delay between R&D and commercialization. No, co-investment is a great idea - much earlier while the iron is still hot and NSF has a better chance of finding out before it spends a lot of science money that an idea has no market appeal. Anyway, companies who want to let NSF pretend to be private matchmaker, read the details

The military needs the commercial sector, because only the commercial sector delivers technology quickly. [Loren Thompson, Lexington Institute, quoted by Red Herring, Dec 2001] Stacy Lawrence's piece also noted that Thompson calls the DOD "the last refuge of socialist buying practices in which a few companies receive the bulk of defense contracts". No matter whether Thompson is right, DOD will still lean as far as it can to socialism while decrying whatever is left of the Communist menace. DOD's SBIR is a good example of how socialism works - contracts are let to support the institution's present practices and programs with the hope that steering money away from innovation will prevent the corrosion of dogma that innovation causes.

A targeted tax for R&D. The Connecticut Clean Energy Fund is investing $6M in first-year investments for fuel cell commercial application projects. Managed by Connecticut Innovations, the Fund is capitalized by a surcharge on consumers' utility bills and is expected to grow to approximately $120 million by 2005. [SSTI, May 17] New York, Massachusetts, Ohio, and of course California are also dabbling in such industrial policy for energy. It remains to be seen, again, whether state legislators have the patience for R&D-based industrial policy.

Good Bye, Alien Scientists
(May 16,02). After USDA bans foreigners from its science programs, can the rest of the government be far behind? Science (Martin Enserik, May 10) says USDA will no longer permit foreign scientists and students (other than permanent legal residents who can own SBIR companies) to work in its labs. The policy will be easy for the agencies to apply to SBIR since they hold SBIR in such low regard anyway. DOD has had episodes of anti-foreigners over the years in technology development. Nativists and paranoids are lurking in many places. In DOD it's less the fear of sabotage than the fear of stealing the technology.

The paranoids in DOD have recycled their regular proposal to protect defense research by imposing pre-clearance on basic research publication. Bishop Ashcroft, who even suspends habeas corpus for his enemies of the state, would love it. Whenever any security problem arises, the paranoids take the opportunity to try to classify everything. It serves their purposes two ways: it limits public information that could show any mediocrity and slows down technology progress by eliminating whole groups of world-class scientists from doing research. David Malakoff reviews the proposal and the world's usual horrified response in Science (May 3).

MDA and DOD have released their mid-summer SBIR solicitation. The usual plodding list of "requirements" for the Services and a mixed laundry list for MDA which is playing summer ball for the first time. 1000+ proposals in January wasn't enough for MDA which is transitioning from marketable innovation into a vague land of "anti-missile value". The summer list of topics is also the first departure since 1985 from a call for innovative technology into specific requirements. The list also presents specific people for prospective proposers to talk to in an attempt the divine what they are really looking for (the old scheme merely wanted the best new technology in the proposer's field). See MDA topics .

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CuraGen helps develop tumor-fighting monoclonal antibody. Scientists at CuraGen and Abgenix have developed monoclonal antibodies that bind to a growth factor associated with cancer and inflammatory diseases. The companies said today that the antibodies bind to PDGF D, a member of the Platelet-Derived Growth Factor family. In preclinical studies, PDGF D has been shown to be improperly regulated in cancers, causing tumor formation when inappropriately expressed. Researchers hope to use the monoclonal antibodies that bind to PDGF D to solve the problem. ... The PDGF D monoclonal antibodies are one of 17 monoclonal antibodies the company currently is evaluating with Abgenix. [Adria Cimino, Mass High Tech, May 2] Last week, three different brokers downgraded CuraGen after reported losing $20M in the quarter. If you are a public company that wants active and optimistic market, a nice technical story won't make up for regular losses. Only the government ignores financial results for a company and focuses on the technology, since the government only wants the technology anyway and is usually blind to any way to get the technology other than direct government subsidy. Which, of course, why SBIR has achieved no notable economic results and probably (if it could be adequately measured) not that much exciting technology either. Only the politicians won anything.

DOD can't afford it: Due to a reduction in budget, the SBIR/STTR Topic search engine is no longer available. Gotta send money to Afghanistan operations and ditch suppport for small businesses' trying to fathom DOD's interests and intents. Nor can it afford to tell who wins Fast Track awards, perhaps because it intends to ditch that too. The days of enlightened management in DOD SBIR are fading fast now that both Jon Baron and Bill Clinton are gone. Back to plodding autarky!

AAAS sees government R&D increasing to a record high of $112B, with most of the gains going to "missiles and medicine". Details

For all those SBIR companies who pretend that defense technology has an investment future, two hopeful VCs are trying to raise a $25M fund to match a $50M SBIC handout for "asymmetric warfare" technology. Patriot Ventures says it will start investing late in 2002 in anti-terrorism for business.

Ross Reviews Kealey. Terence Kealey spoke heresy in the science world - that the nation does not need government support of science. Philip Ross 's [Red Herring, May 02] review of Kealey's life and opinions boils Kealey's argument into three sentences: The UK and US led the world economically and technologically when their governments spent the least on public science. Those subsidies they did make were wasted on white elephants like Babbage's failed clockwork computer in Victorian times. Long term per capita growth rates were the same after subsidization began, in the 1940s, as they had been long before - about 2.0 to 2.5% annually. Kealey does say that defense research is good but not from any economic benefit. Oh, don't worry, the politicians who hand out pork to the scientists and engineers are not going to be dissuaded by an academic. The Iron Triangle of legislators, bureaucrats, and beneficiaries will keep pretending that the nation cannot live without it. Those interested and open-minded will find Kealey's book fascinating: The Economic Laws of Scientific Research, 1996. The pigs with their noses in the trough will hardly note any disturbance.

Pentagon Moans About Too Little Commercial Investment. The same Pentagon that has consistently avoided commercializing its SBIR now complains that the war effort in Afghanistan is limited by too little commercial investment in communications satellites. Greg Jaffe's Wall Street Journal piece ("Modern Warfare Strains Capacity to Communicate", Apr 10) says that the military's surge in data to be relayed by satellite has overrun the capacity available. The Pentagon could learn the lesson that private industry won't invest in new technology that doesn't have a profit potential and that if private indusstry fails to invest, the military will have to do without whatever advanced technology is not directly funded by military R&D. But there's little sign that any military service is applying such lessons in its SBIR. Low risk and predictable results for minor advances still dominate the selection of projects.

Seeds From Tobacco. Pennsylvania opened its $100M Life Sciences Greenhouse fund to be spread (like manure) in equal increments (ain't politics grand?) among three state regions: Philly, Pittsburgh, and DriveThrough. The money from the tobacco settlement (which was to compensate the state for medical spending) makes the the largest single technology-related, economic development investment in Pennsylvania history, says the Governor. [facts from SSTI, Apr 5,02] Will it create 4,400 new jobs, attract or create 100 new biotechnology companies, and leverage more than $150 million in private capital over the next five years or just buy jobs for as long as the money lasts? I don't think that the history of such spending holds out great prospects.

Plowing Through the 12000. DOD is still evaluating the anti-terror quad sheets, having accepted so far about 7% of the 7800 "reviewed". First round winners get to do a ten page white paper from which some unknown percent will do a full proposal. Follow the Count If you just thought up the world's most brilliant anti-terror technology, they will still consider it - they always want some good publicity.

Politics to Save MEP. A bipartisan majority of Senators want continued funding for the Manufacturing Extension Partnership. Senators Snowe (R-ME, Maine has a big MEP activity) and Lieberman (D-CT), co-chairs of the Senate Task Force on Manufacturing, are asking for $110M for next year after the president said cut it to $12M. Just normal political budget gaming.

Let's Make a Deal Scientists can post an alluring description of their work at Technology Marketplace, a site sponsored by the European Commission that helps researchers find support for their bright ideas. The goal is to attract companies, venture capitalists, and other potential backers who can underwrite further research and development, marketing, or manufacturing, or just share information. So far, the site boasts 95 practical projects in biology, medicine, energy, the environment, telecommunications, and industrial technology. Some of the novel proposals that need sponsors include a method of generating energy from the carcasses of animals with mad cow disease, a test for detecting Salmonella-infected animals, and designs for more streamlined helicopter fuselages. [Science, Feb 22,02]

Cut Those Small Business Handouts. Give the money to big business contributors instead. The Bushies want to slice the Manufacturing Extension Program by 90%, says JEFF BAILEY (THE WALL STREET JOURNAL, Mar 26). The knock-on effect would also slice state funding of the centers and the nice living of more than 400 regional and local consulting organizations that (but who apparently don't contribute to Republican coffers). It's part of the anti-NIST agenda that Bush's father couldn't execute (and this Bush may not be able to do it either because those programs have lots of Congresional friends). MEP wants to get newest productivity tools to small manufacturers, particularly since large business is drifting toward outsourcing smaller jobs. Bushie spokesman Commerce Secretary Evans says MEP should become more self-sufficient with any financing scheme except federal handouts. After all, that federal budget money is needed for tax cuts for the upper half of society.

SBA now has a free, online entrepreneurship course in an 11-session interactive course by My Own Business, Inc. The course includes audio sound bytes, quizzes, feedback and an online tool to create business plans. Starting and Managing Your Own Business,joins several other courses at SBA's online classroom.

Micro-Mini Startup Grants
(Mar 21) The Maine Technology Institute funded 25 garnts of $10K each (of 62 proposals) in an attempt to develop new technology clusters and find innovative ways to fully exploit its rich natural resources. Recipients must match the grants. Next quarterly round of mimi-grants due May 16. [Alexander Soule, Mass High Tech, Mar 18] Although it's laughable money for technology, states do that sort of thing and still expect great results. Meanwhile WILL PINKSTON of THE WALL STREET JOURNAL (Mar 21) notes that Business incentives are the latest government programs being targeted for cutbacks as states scramble to cope with budget shortfalls. Virginia's General Assembly earlier this month slashed a $30 million "deal-closing" fund by more than 40%. .. Nebraska Gov. Mike Johanns is hoping to persuade corporations to forgo a portion of expansion tax credits for a while. Detractors of so-called corporate welfare argue that cutting taxpayer-funded perks is long overdue following the booming 1990s when states offered huge incentives -- ranging from tax breaks to road funds to job-training grants -- to lasso their share of rapid economic expansion. But advocates contend that trimming incentives for a short-term revenue fix can do a lot of long-term damage -- particularly if corporations suspect inducements might evaporate at any time.

More SBIR for Fewer Players (Mar 17,02) The Department of Education has changed its SBIR to up the amounts per award. Good news? Depends on whether you are a marginal or a top proposer. The tops cheer because they get more money; the marginals boo because they now get nothing. There is NO MORE MONEY than before, just the rich get richer. If DOE is a capital investor, it now has more flexibility to do the right thing. If it is just a government R&D spender, it needs to fiddle with fewer contracts.

Technology Policy Wonks to Convene. Third Innovation Policy and the Economy Program Set While some practitioners have centered themselves on running programs and shoring up budgets during the present fiscal crisis, other efforts are underway, including that of the Innovation Policy and the Economy (IPE) group of the National Bureau of Economic Research (NBER). The IPE group is presenting five papers developed by leading academic researchers on April 16 at its annual forum in Washington, D.C. The papers, to be published in an annual series by NBER, will be open to discussion by policymakers and those interested in the interaction between public policy and innovation who typically attend the half-day event. The papers include:
Short-term America Revisited? Boom & Bust in the Venture Capital Industry and the Impact on Innovation by Paul Gompers and Joshua Lerner, Harvard University;
Intellectual Property, Strategic Behavior and Economic Growth by Dennis Carlton and Rob Gertner, University of Chicago;
Federal Support for R&D in the Antiterrorism Era by Roger Noll, Stanford University;
Encouraging the Diffusion of Drugs into the Third World: Patents and other Incentives by Jenny Lanjouw, Yale University; and
Technological Change and Economic Development by Jeff Sachs, Harvard University.
On a related note, Innovation Policy and the Economy, Volume Two recently was released and contains several topical papers to the tech-based economic development field: Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries by David S. Evans and Richard Schmalensee; 2) Intellectual Property: When Is It the Best Incentive System? by Nancy Gallini and Suzanne Scotchmer (see the 8/17/01 Digest for an article; 3) Government Support for Commercial R&D: Lessons from the Israeli Experience by Manual Trajtenberg; 4) Prospects for an Information-Technology-Led Productivity Surge by Timothy F. Bresnahan; and 5) Do We Have a "New" Macroeconomy? by J. Bradford DeLong. Volume One, which covered the IPE group's inaugural 2000 forum, is one of the more popular titles in the SSTI catalog. Both volumes can be purchased from NBER or SSTI. Admission to this year's forum in D.C. is free, but advanced registration is required; contact Rob Shannon at or (617) 868-3900.
[SSTI, Mar 2,02

Science (Jan 18) magazine picked up the story that the Army has been ordered to hunt down new technology with a new weapon - a VC fund. A first funding of $25M would come fromn an SBIR-like tax of R&D budgets. The advocates of steady slogging of course booed, an Army Science Board panel concluded that existing research funding mechanisms could meet the Army's needs. It also warned that creating a venture fund could embroil the Army in "tumultuous" debates over how to spend any potential income. But it questioned whether products made for the military will also be attractive to other consumers; the Army now earns less than $500,000 a year in royalties from products it helped develop.. Which argues against letting those guys anywhere near the fund management once the Army decides how to really invest for change.

Five SBIR firms each won one of the 25 Circle of Excellence Awards by SPIE: BEAM, Photobit Technology, Emcore, QED Technologies, and Scientific Solutions. All but QED were BMDO winners (in MDA's former venture mode where large useful innovation counted).

Science's Netwatch (Jan 18) says that NSF offers R&D data for the policy wonk. DATA SETS: Follow the Money. Anyone interested in patterns of investment in research and development will find a bounty of information at this site from the National Science Foundation (NSF). The Industrial Research and Development Information System contains more than 2500 tables of R&D statistics gathered by NSF between 1953 and 1998. The data, in Excel spreadsheets, come from NSF's annual Survey of Industrial Research and Development, which estimates total spending on R&D by industrial firms within the United States. For example, you can see how priorities have shifted in a post-Cold War world, with research on aircraft and missiles shrinking from 33% of total industrial R&D in 1960 to just 8.5% in 1998 (of $169 billion overall). The tables break down data by state and industry, by scientific field, by number of companies, and even by R&D expenditures per scientist or engineer.

More DOD High-Tech DOD's finance chief plans to up the Pentagon's S&T allocation to 3% from 2.5% as part of a move to bring in more high-tech. Those UAVs and laser guided bombs made a great impression, as much of an awakening as in Iraq a decade ago. And since the whole budget is rising to meet the political threat from terrorism, the S&T doers, including the SBIR doers, can look for more bread on their tables. Whether the DOD uses SBIR to capture the business agility of small business or merely as a mandated set-aside to do what the big companies do will determine whether SBIR is worth doing at all. If nearly two decades of SBIR history is a guide, look for mediocrity and compliance. [facts from CHRIS O'BRIEN, San Jose Mercury News, Jan 29,02]

More Health, and More SBIR Bush plans to up NIH's budget to a record $27B in FY2003, enough to complete a five-year doubling of the agency's budget that began in 1998. Propose, propose, propose. How will they ever spend that much SBIR on innovation?

The new budget cutter heading NASA says, "cut the budget". Without a Russia to beat to the moon, NASA struggles for any compelling need, except pork politics, that would justify its bigness. Indeed, its has cut a fourth of its employees in the last decade.

New Administration, New Subsidy. Out goes a Clintonian program for fuel efficiency in autos and in comes fuel cell research. Why? Fuel cells won't restrict profits from selling gas guzzlers to Americans who only want to talk about conserving energy. And administrations learned from the Carter debacle not to tell Americans ugly truths. The fuel efficiency has had $1.5B to look for magic in the laws of chemistry. The betting is that fuels cell cars are 10-20 years away and only then if gasoline prices skyrocket permanently. The DOE shift may appear in SBIR awards eventually as soon as the department can turn around its aircraft carrier of a bureau.

The Name Game. Politics as usual: Bush did what Clinton did when he got in office - change the name of the anti-missile program. Henceforth it will be Missile Defense Agency. Same crats, same place, same chatter.

Silent SBIR. In three full days of 2000 papers and speeches in economics, no one (that I heard) ever said SBIR. Indeed even technological innovation got little attention at the big annual confab of economists from many allied social science associations. With no re-authorization at issue and little evidence that the government cares about the economics anyway, the economists moved on to other topics.

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