SPIE Paper 1996

Wavelength Division Mini-Money:
Small Subsidy for Small Business

Carl W. Nelson
Ballistic Missile Defense Organization - US Department of Defense
7100 Defense Pentagon, Washington, DC 20301-7100

A Paper presented at the SPIE International Symposium-Photonics West
San Jose, CA - January 1996

ABSTRACT

The government subsidizes American small businesses to create WDM (and four zillion more technologies). The Ballistic Missile Defense Organization (BMDO) supplies a little seed capital for infant development and then a little more when private capital joins in. BMDO's cumulative investment of $300M in Small Business Innovation Research (SBIR) since 1985 has seeded some notable successes. BMDO's SBIR, which has helped a fourth of this symposium's speakers, attracts a dollar of private capital for every SBIR dollar. Small US firms raised $200 million from public sale of common stock, doubled in employment, and are attracting a growing pool of private capital to match and expand BMDO's subsidy.
Keywords: WDM, small business, subsidy, capital investment, anti-missile, entrepreneur

1. SUBSIDY, ANYONE?

New technology needs serial miracles: a discovery based in science, reproducible proof that it works in practice, early investors with more nerve than prudence, an entrepreneur who thrives on chaos and barriers, at least one profitable use, and investors looking for a quick and obscene profit. The US government typically provides much of the science after which the free-market provides the rest. But it can also sow some seed money for the smallest entrepreneurs who have few other ways to threaten the status-quo, which if not threatened will rest comfortably on its profits until competitors invade. From an American national perspective, better that the competitive threat come from within than from without.

The US government has about 125 business subsidy programs handing out $85 billion a year 1. Elected representatives, who seem genetically disposed to subsidies and economic nationalism, disagree only on means and beneficiaries. US technology policy mainly follows "which interests and favored constituencies are in the saddle" . The technology subsidies rely on a market-failure view that government should spend (invest) in technology to fill the gap left by inadequate, wrong-headed (short term), private investment. Without such subsidies, say the market-failurists, the nation would

1) lose the societal returns from innovation which Mansfield 3 found 2-3 times the return to the innovator

2) lose the technologies from within America (an increasingly outmoded view say Nelson & Wright 4)

3) lose jobs to foreign competitors.

One subsidy - Small Business Innovation Research (SBIR) - offers the irresistible political benefits of helping American small business. One of the twenty autonomous SBIR programs across government, that within the Ballistic Missile Defense Organization (BMDO), seeds new technology for anti-missile defense (such as WDM components) and shows such economic success that it offers a federal model for commercial technology within free-market precepts.

2. WHAT AND WHY SBIR?

SBIR funds US small firm R&D in two phases: Phase 1 under $100,000 to study a new concept and Phase 2 normally under $1M(illion) to prototype it. After SBIR the government retains only a right to royalty-free use for government purposes; no repayment, no equity taken.

SBIR also relies on market-failure. In 1982 Congress found that US R&D was ignoring small business's advantages: more innovation per employee (especially in firms under 20 employees), more new jobs created, and more new products. Several studies 5 found that small firms do far better at innovating. So Congress enacted a government-wide SBIR with a double purpose: to get small business innovations into federal R&D and then into the marketplace.

From 1983 to 1991 more friendly evidence mounted. Studies 6 found more efficient innovation in small firms. Engaging theories, like Gilder's microcosm 7, argued that the microchip would favor nimble businesses able to infinitely specialize. Congress's GAO 8 found that firms receiving a total of $1000M of SBIR from 1983 to 1991 then received $1100M in new revenues and investment with claimed prospects for $2000M more. Congress also found frustration of its original SBIR goal of increasing the small business 3% share of federal R&D. So Congress doubled SBIR to $1000M per year and demanded more commercialization.

Congress also tacked on a mini-SBIR program, STTR (Small Business Technology Transfer), to induce entrepreneurial business to drag new technology out of non-profit research institutions and into the marketplace. Although SBIR could have done the same thing, the non-profit's incentive is a mandatory 30-60% share of the money.

3. BMDO'S APPROACH TO SBIR

BMDO wants new commercialized so that private capital will create products improve technology. (actually, all military programs, always on horns dilemma because commercialization breeds proliferation against which alternative is expensive, secretive, sheltered autarky cold war.) then whenever needs technology, healthy industry can supply it. the chagrin planners, though, since anti-missile defense strategy responds to yearly changing circumstances (political technologicalmilitary), cannot forecast its appetite for any particular advance. thus bmdo s sbi seeks large generic advances like lighter and faster components across a broad front of technologies. market pull, no technology push.

BMDO funds pre-competitive anti-missile technology to reduce the technical risk enough to induce early private investment. BMDO attacks only technical risk - the chance that the idea will not work; it does not attack business risk - the chance that it will not sell. Nor does BMDO intend to either lower the cost of capital nor to compete with private capital. Instead, BMDO hands out creation capital not otherwise available at any price.

BMDO gives the firm money and incentive. A typical Phase 2 offers the company $300,000 to reach some technical performance goal followed by a matching of private sector investment for another $400,000. If all goes well, BMDO may offer additional funding with an increasing matching ratio. The matching, besides proving market interest, also deters a "throw-it-over-the-wall" approach that too often condemns a technology advance to the dustbin of unmanufacturable curiosities 9

In many ways, BMDO is an oxymoronic government venture capitalist with any financial return to the government coming only from new tax revenues. Naturally, the revenue gain is at least partially offset by revenue loss to the product(s) made obsolete in Schumpeter's "creative destruction".

4. RESULTS

BMDO's SBIR has had both technological and economic success as intended by the SBIR legislation. The challenge is to measure the results in a way that also helps Congress determine what to do with SBIR when it comes up again for re-authorization in 2000. Unlike most government R&D, the economic success is more easily measured (and of more interest to Congress) than the technological.

4.1 Technological

Of all projects ended by late 1995, 85% found technical success in that it met its contract performance goals. If no investment followed thereon, though, the firm has only a hollow victory as it waits in vain for government to repeat the subsidy. Among the technological successful, 25% have also found private capital. The proportion of such projects that only a government could love is fading as Phase 2 proposers scramble to compete by recruiting private sector partners. The pattern is shifting dramatically in that almost every project started in 1994-1995 has private capital joined or required or implied by the firm's history. By 1997 the commercializers will own the field in BMDO.

WDM technologies found several successes in laser diodes, waveguides, VCSELs, non-linear optics materials, a fiber amplifier, optical switches, and other such WDM-alia. In most cases, the impetus for the project pre-dated the present growing interest in WDM. This optical fiber community is today benefitting from BMDO's earlier devotion to optical computing. Many III-V materials projects produced new techniques for AlGaAs, AlGaN, GaN, GaAs, InP, SiC, and ferroelectrics. Their architects can tell their own stories here at this symposium while they struggle to turn technical success into economic success.

Unhappily, the other 15% failed. Which can be viewed more as a measure of program success than program failure because BMDO expects frequent failure in the most technically innovative ideas. The 15% may even show excess conservatism. A program with no failures took no risks, made no revolutions, and disturbed no doctrines. Ten firms disappeared and a few teeter on the verge. BMDO will not save them by sending SBIR money. (Only politicians, not capitalists, want to save dying enterprises.) Risk-taking has improved in 1994-1995; 28% failed.

4.2 Economic Success

In terms,="" though,="" success="" measured="" more="" clearly.="" a="" large="" bonus="" on="" top="" of="" r&d="" value="" (which="" simplisticly="" can="" be="" assumed="" as="" exactly="" worth="" money="" spent),="" bmdo="" s="" sbir="" also="" showed="" an="" auditable="" economic="" return="" firms="" and="" therefore="" to="" the="" nation="" for="" its="" $300m="" investment="" in="" 430="" phase="" 2s="" by="" 215="" firms.=""

Ten firms who sold public stock by Initial Public Offering (IPO) each had enough BMDO SBIR funding - $13M total - to speed their technologies' maturation. Six won their first Phase 2 from BMDO when their median size was eight employees. Their total market cap(italization) has swung between $300M and $800M, normal gyrations for young stocks. One saw its market cap septuple; one was delisted for inadequate capital. In addition, two more firms, with small SBIR contributions, raised another $60M by IPO. The twelve companies together had a late 1995 market cap of $1.3 billion riding the wave of a turbulent 300% increase in technology stock values since October 1990 as measured by the Pacific Stock Exchange Technology Index 10. (Market cap is the number of outstanding shares times the NASDAQ trading price.)

As a thought experiment, suppose BMDO's SBIR were a capitalist (instead of a subsidy machine) who took an equity position proportional to its capital contribution at the time of the subsidy. BMDO's equity would in late 1995 be about $100M for the twelve public stocks (where market value can be objectively measured). For the total $15M in those twelve companies that would be a sixfold return over an average period of about five years. Such a measure also filters out the effect of other investments, including government subsidies.

BMDO's hypothetical equity value in the 200 unlisted firms would be pure speculation since private firms have no basis for public estimation of their worth. (Nor does BMDO have enough information to estimate what a venture capitalist calls the residual, the value at which the firm is carried in the fund's portfolio.) If one merely assumes neither increase nor decrease from the amount invested, the total return then to BMDO would be the $100M in the publicly traded companies.

Ten more firms say they will go public for about $100M "when market conditions are right", an easier claim to make than to actuate. More firms will soon reach the point where their capital needs (and the itchiness of their investors to cash out) will push them toward the public market. Of course, IPO isn't the only cash-out route; mergers and acquisitions pay well, too. Although going public wasn't BMDO's goal for any firm, it serves BMDO's interests by accrediting the technology and the firm. Being public also admits market cap as an SBIR evaluation measure and imposes a business discipline on the firms.

The doubling of employment (from first BMDO SBIR proposal to most recent proposal) is far above the US average of two percent per year and better than the average American small high-tech firm. Using employment as a measure, though, may well understate the economic impact since 1) the SBIR firm captures only a fraction of the new economic activity (Mansfield's point), and 2) growth of the inventing firm is often not the economically efficient deployment of the technology. Indeed, useful truths about industrial organization are shifting 11 and a debate rages over whether "small is beautiful" or merely small 12.

Private capital investment, a more convincing indicator of future economic activity, is pouring into BMDO SBIR projects. By late 1995 over $60M was committed, spent, or planned for 100 projects for $60M of Phase 2 SBIR starts since 1992. Recently, projects in 1994 and 1995 averaged over one private sector dollar per SBIR dollar. Only about ten percent of projects now get an unmatched subsidy, whereas all got it before 1991. Typical matches are carbon-carbon materials with an aircraft brake company, a cryogenic cooler with a pump company, and a polymer dielectric with a chemical company. The growth of private matching is shown in Figure 1 where the light colored portions show private capital during Phase 2.

Such capital tallies must be under-estimates since collecting exhaustive data on private capital exceeds the bounds of free-market government. For government's purpose in the SBIR competition it is sufficient to discover enough capital commitment to decide which firms and ideas have the best commercial prospects. The firms moving towards a post-SBIR market are evidently deploying more capital than is seen by government. Gathering post-SBIR economic data from firms is mostly self-congratulating intrusion into private business (which BMDO eschews). In fact, papers such as this tread a fine line between 1) announcing opportunity to new firms and new investors, and 2) self-promotion by a government bureau.

5. SUCCESS STORIES

BMDO's SBIR has some spectacular economic successes (not unexpected when large money goes to small clients).

5.1 The $100M Club

Six firms had late 1995 market cap over $100M, a threshold of visibility to many institutional investors.

Company A, which had raised 20% of its initial capital in 1988 with two BMDO SBIRs, raised $11M by IPO while it was temporarily the sole world supplier of a blue Light Emitting Diode. Its market cap has swung from $40M to $300M in mid-1995 (which qualified it as a speculative bubble suspect) and back to $150M at the end of 1995 as market prospects for the world's best blue LED varied in the intense world-wide competition.

Company B's first three SBIRs (one in 1987, when it had six employees, from BMDO) led to $25M equity investment by 1993 including $13M IPO. By late 1995 it had already entered into and cashed out of a two-year old joint venture with an estimated $20M (including future royalties) from a large filter maker, competed a secondary offering for $18M, bought three companies, and grew past 140 employees. In one of its markets it went from a 5% share to a 90% share. Its late 1995 market valuation quintupled its IPO market cap. Among its product hopes are a blue LED competitor to Company A's and capacitors for active (1 Gbit DRAMs) and passive devices. (Both technologies supported by BMDO SBIR.)

Both Companies A and B see blue lasers as their longer term future with fantastic profits to follow. They had better keep a cash cow in the barn for the experts say, "room temperature blue lasers are science fiction 13". Others still expect giant markets of $400M blue LED displays, $8,000M in color printing, and $30,000M in optical storage 14.

Company C had six employees when it won its first SBIR in 1986 (from BMDO) in magnetic bearings. By mid-1995 it had 120 employees (plus 30 professors consulting), raised $22M in public offerings, projects $38M in commercial revenue for 1996, and made a deal with an auto-maker for a new drive train for a 30% more efficient automobile. Its late 1995 market cap quadrupled its 1992 IPO value.

Company D (a WDM'er) raised $50M public money through an Initial and a Secondary offering wherein it became the first BMDO SBIR firm to have investors cash out (including $5M to the company president from his market value of $25M). VCs can take heart that investment profits in WDM technologies can be realized and can be something more than a legacy to their grandchildren.

Company E (a WDM'er), already public when it won its first BMDO SBIR, has seen its market cap skyrocket a hundredfold in four years with its stacked electronic chips and a computer giant as a manufacturing partner. Company F raised $40M in 1992-93 although the firm's focus has shifted from its BMDO SBIR technologies in materials to the display market.

The market cap will, of course, fluctuate with the vicissitudes of NASDAQ's auction of expectation. And as the firms begin to earn regular profits the volatility could actually increase as it shifts from a story stock to an earnings stock. These and other technology firms found 1995 an especially volatile year.

5.2 Up and Comers

Company G had no income in 1992 after three SBIRs. With BMDO's offer to match private capital for proving its laser radar tracking in corneal eye surgery, it first did a private placement and then an equity deal with a large European firm. Release for European sales is expected in 1996 after clinical trials in Greece. Human clinical trials continue in the US for which post-SBIR investment will be about $15M. And a race is on to sell the industry to the public with "wine-and-cheese seminars, customer databases being built, 800-numbers, business forecasts, strategies for market domination" .

Company H's matching investment from a portable cooler vendor and a large candy company for the development of a compact, compressor-less refrigerator led to a large US manufacturer opening a Midwest factory to make refrigeration for vending machines. Full scale production will need something like $30M investment. BMDO is giving it a chance to grow with the proviso that every BMDO dollar gets more expensive as the technology matures. The last BMDO dollar will be matched by four private dollars.

Company I started as four people in 1990, got a BMDO Phase 2 for a VCSEL technology, moved several times, acquired another company, raised several millions in capital including $11M in late 1995 (from a consortium of venture capital, an electronics firm, a university, and a musician), and has had a growing matching ratio.

Company J sold an SBIR-developed polymer technology to a foreign chemical company. It then obtained BMDO approval for a growing match ratio (several million dollar total) with a large US chemical maker to develop a low-cost high-volume version of an SBIR-developed rigid polymer.

Companies K and L, after $3M BMDO SBIR, arranged independent manufacturing companies funded by venture capital of about $10M. Company M has grown from 3 to 125 employees for a profitable worldwide silicon solar cell market. Company N raised $2 for every BMDO SBIR dollar in one project and then won a $4M government award for commercial technology to match $4M from an auto-maker and a metal products maker.

More and more companies can tell such stories. Although BMDO was not the only SBIR source in most of these firms, BMDO claims credit for prodding them into serious commercialization.

6. LASERS AND OPTICS

WDM comes only recently to BMDO's SBIR with a variety of projects, and many of the best SBIR recipients find themselves here in this symposium. In companies appearing here (a fourth of the papers), BMDO SBIR has invested $20M. In WDM companies not blessed to be here, another $25M. None of the companies has yet approached the $100M club although many talk the talk.

Company O was started by an entrepreneurial escapee from America's $48M winner of SBIR money. Its two BMDO Phase 2s and private funds are moving it to stability if it can get the price of sophisticated optical devices down to marketable levels. Company P's founder, a spinout from an American giant, started and left a firm that grew to 80 employees and that is now withering behind him, and then started another company that is growing rapidly with $3M of BMDO SBIR in memory and displays, especially using polarization. Public Company Q has enjoyed $27M of SBIR and still struggles to find markets for its electronics materials. The market takes a dim view of the prospects in a market cap that has halved its 1989 market cap. Company R, which has had $25M+ of SBIR ($8M from BMDO) for a variety of optical devices, has grown from four people in 1987 to 70 today although much of that growth is solely SBIR-supported jobs. Company S specializing in doped fibers dreams of the $100M club in just a few years but to do so it must convert its pyramided assumptions into capital-attracting products. Its two Phase 2 SBIRs are only the first step but could be the last if the private sector doesn't play.

Companies also often arise when Professor Moonlight wants the riches of business, the safety of tenure, and government subsidy of both. Some professors, gripping tight their tenures, started Company T whose optical interconnects may bring it WDM fame and fortune. A moonlighter just started Company U for a WDM transmitter. Company V, on the other hand, came from a professor who bet his career on a fiber communications company and grew it to 70 employees mostly without SBIR. Company W was started by a professor who succeeded with practically no SBIR and now has a market cap of $150M. Company X was recently formed by a scientist (and a frequent SBIR winner) who accepted a professorship in another state and quickly formed a small company to which BMDO gave a Phase 2 for waveguides.

More companies are being born daily to replace these companies. Investigators in the more successful (at winning SBIRs) go out to try it for themselves. Yet, all may not be well. Many of these stories depend solely on government money which may evaporate as the government pendulum swings away from funding commercial technology. Bairstow's editorial 16 notes the lack of a "killer-app" for lasers without which new technology cannot thrive. BMDO's attitude is to kill early-on the projects in companies without a sense of business as the reason for the technology rather than the reverse.

7. IS VENTURE MONEY AVAILABLE?

America is awash in venturesome capital , "You've got too much money chasing too many deals. The result is to drive up the price on investments" thanks to the Steiger amendment of 1978 which lowered the capital gains tax rate . The 1990s have seen another surge like those of 1968 and 1983 with classic speculative excesses such as profitless network vendors with billion dollar market caps. Companies that can't get capital aren't listening to the market. When every capitalist says no, perhaps the message is that it won't sell. Billions are available although it can be cyclical and can look like a shortage to a new entrepreneur

As early as 1987, 85% of all venture capital flowed to technology intensive areas 22. In 1992 the total US venture pool was $35,000M, more than ten times Japan and Germany 23. Technology start-ups got $2600M in 1994 24, 18% above 1993's total. Venture-backed IPOs got $16,000M over 1991-1994 25 and 1995 was a near record year with about $29 billion of IPOs (1993's record was $34 billion) 26. In 1995, VC firms raised $1950M of new capital, 14% higher than the first half of 1994 27. As many as fifteen mutual funds have at least 17% of their assets in IPOs 28. One of the biggest 1995 VC raisers is a lead investor in a WDM'er here. And as large VC funds outgrow little investments in little companies, more funds are formed to replace them 29. Early stage venture companies are also out-performing (14.6% return) all-stage companies (11.6%) 30. And on top of all that private money is $345M in government backed equity money for Small Business Investment Companies 31.

Who invests in BMDO projects? The instinctive answer, venture capitalists, play only a minority role, although they do seek small openings. In BMDO projects, money comes from modest size companies with established market channels, from Fortune 500 companies (who supplement their internal preference for incremental process improvements 32, and from "angels" who invest $10,000M annually in 30,000 ventures 33 with a median of $20,000 34. In a VC-rich world, strangely, the start-ups favored by a high risk program like BMDO need angels because the more the venture capital the larger the VC firms and the less the interest in the tiniest start-ups 35

Note that "awash with capital" is not a unanimous view. The market-failurists cry otherwise 36, especially for first financing for start-ups.

Although the price of capital will change with changes in interest rates, the supply will always meet the demand at a market (equilibrium) price. Economics 101. That price varies from country to country 37 and from time to time for a variety of reasons. Indeed one of the common market-failure arguments moans that the price is too high for new technology or that small firms must surrender equity. Of course. Risk capital deserves a share of any rewards. If government responds to such claims with free capital (as SBIR), the demand will be infinite and the supply then determined by arbitrary limits set by political forces. (It was infinite demand and infinitesimal supply that buried the Soviet Union's command economy.)

OPM shows that someone will risk hard money on a wager of future profit and will keep the firm pointed toward a marketable product. More important, OPM usually has more money on call which the firm will need since R&D is only 10% of the total cost of getting an innovation to market. The sooner OPM enters, the better the chance that the project will have the continuous flow of capital to keep feeding a growing success. Drucker 38 estimates that a company outgrows its capital base with every 50% increase in revenues.

8. DOES SBIR WORK FOR BMDO?

When life hands you a lemon, make lemonade. Agencies resist set-asides which perforce restrict the flexibility to optimize investments. Set-asides, after all, appropriate funds for a political end that the agency may well not have pursued on its own. If the agency thought that SBIR's benefits were worth its investment, it could have done so without SBIR. The law exists because the agencies disagreed with Congress about how much small business innovation was enough. BMDO at least made a tasty lemonade.

BMDO suffers mixed emotions about SBIR because it must have the innovation in the long run and must resist it in the short-run (where money is spent and milestones pursued) as do all mission agencies. Since SBIR funds only pre-competitive ideas, the results cannot enter the first generation of anti-missile defenses. Seeds make poor bullets. Even when the pre-competitive idea grows up to be competitive, developers everywhere still evade whatever novelty inconveniences their assumptions. While it's not exactly cognitive dissonance, it is a marked bias.

Inconvenient or no, BMDO gets a bonus when the market develops new and competing technologies. BMDO can thereby enjoy an indefinite number of new technology options without indefinite R&D costs to explore them all 39. BMDO does not fret that commercialization will develop a non-military device. The specific expression of the technology matters a whole lot less than keeping the development moving. BMDO always has the option of actually paying for whatever development it wants. (There never was a free lunch.) The big bonus from commercialization comes when BMDO sees the technology getting advanced without paying a dime. In the long-run the options will feed the next generation in ways that the present developers cannot foresee.

Innovation was not always inconvenient. BMDO's predecessor, SDIO, was all innovation in 1985 when it allocated 3% of its budget (plus SBIR) to research and far-reaching innovation even while investing substantial amounts in such innovations as space-based weapons. The whole idea of an anti-missile defense has been on innovation's leading edge since the 1950s albeit out of sight of the marketplace. The technologies brought in by SBIR have just added to the mix and the SBIR drive for commercialization has added an innovation innovation. Even BMDO's first five years of SBIR 40 pointed to a growing realization that commerce and technology could mix in a military project.

9. THE FUTURE

Futurists must first adopt humility. In 1912 the telephone was going to "bring peace on Earth, eliminate Southern accents, revolutionize surgery, stamp out 'heathenism', and save the farm by making farmers less lonely" 41.

Probably the only certainty is that market-failure will survive as an excuse for government subsidy. The subsidy advocates rely on understandable images like linear advance, science is progress, and the rugged pioneer. The anti-subsidy advocates, who find government inept at choosing whom to subsidize 42, must inconveniently argue that nothing is better than something.

SBIR will continue by law until at least 2000. What happens then will depend on the balance of political forces between free-marketeers and interventionists. The small business beneficiaries will argue for more subsidies despite their devotion to the national principles of individual enterprise and self-reliance that shine as a model for the rest of the world. The ten biggest users of SBIR, who have absorbed about $240M with little economic impact on private sector markets, will unprovably argue that the money was well spent on R&D which will have long run impact (curing cancer and alleviating traffic on US101). Only one firm of the ten is public with a market cap under $10M. If Congress wants an independent evaluation (which Ravitch 43 and Roessner 44 despair of happening), it can commission any number of intellects to do so.

Beyond SBIR, support for commercial technology has evoked furious debate. The Clinton administration wants to integrate Defense and commercial markets as well as direct subsidize commercial technology development 45. The Congressional budget deficit hawks, who are also free-market advocates, want to end such subsidy. Their support comes from entrepreneurs like Rodgers 46 who say that subsidy will be steered to the politically powerful rather than to the disruptively inventive. It comes also from CEO's like GE's Jack Welch 47, "Big companies are the engine for small companies. The idea that a government is off creating these small things and then they're going to do big things is a form of kidding themselves." Still, as Barfield notes 48, "Skeptics willing to take the other side publicly were few and far between - as often happens when government welfare programs for corporations are being debated."

To get more commercialization into SBIR, DOD has a pilot "fast-track" program (inspired in part by BMDO's experience) whereby Phase 2 proposers who offer dollar-for-dollar matching by a third-party get preference plus a $40,000 extension to the Phase 1. The policy will not, as feared by some, favor well-capitalized firms since practically no SBIR firm has enough risk capital to offer such matching. They must all find third parties. As a measure of size irrelevance, the median BMDO firm with matching has only eleven employees. Any measure of whether fast-track has any market impact will have to await the long gestation period of technology and the uncertainty of linking market results to any seed stage factor. Both the advocates and the opponents are likely to find what they want in the results.

WDM will continue to win BMDO SBIRs as long as it stays in the forefront of innovation and is moving its results into the marketplace. The firms will each have the same challenge: get innovative, get commercial, or get gone. And the more SBIR money the firm has already had, the harder will BMDO resist a plea for more subsidy.

The market for technology equities has as many futures as futurists. As long as America stays in love with technology and has discretionary income, technology companies will generate great interest in the next Microsoft and Intel. But predicting any of the details is pure guesswork. Contrarians, like Dreman 49, who foresaw five of the last three recessions, will sound the alarm as the present technology wave rolls on. WDM should be in the game with the small companies providing the stories. Some WDM companies will be the future Netscape froths (although perhaps none that rely on the hesitant hand of government to feed them).

BMDO expects to be funding the best of the future froth makers. For example, if Green 50 thinks lithography is the key to cost reduction, a small entrepreneur has a good chance of discovering a breakthrough component technology faster than Green's Big Blue bureaucracy can frame the question. The roadside, though, will be littered with enterprises who died trying. But weep not for them for they will rise again in the land of optimism and Other People's Money.

In the wide world beyond government subsidy, WDM is only one of the information technologies by which the US leads the world in all 21st century information markets 51. In an even wider world, WDM and the information technologies are stirring other revolutions. New competitive thrusts, such as the Java language, will continue to destroy the best and latest plans of even the most competitive firms. Will IT, for example, accelerate a shift from representative democracy to direct democracy of the town meeting 52 and would America want or survive regular referenda? SBIR will continue to encourage the new technology without thought of how it could destroy its own underpinnings.

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