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Small Business Grants: A Program That Works

WASHINGTON—A small Salt Lake City horticultural firm thought it had a marketable idea when it found strains of a fungus that significantly improves the ability of plants to absorb water and nutrients. But Native Plants Inc. didn't have enough money to conduct the necessary research, and venture capital companies weren't interested in an unknown company. Enter the Small Business Innovation Research (SBIR) program, an attempt to share a small part of the federal R&D budget with small, high-

By | December 15, 1986

WASHINGTON—A small Salt Lake City horticultural firm thought it had a marketable idea when it found strains of a fungus that significantly improves the ability of plants to absorb water and nutrients. But Native Plants Inc. didn't have enough money to conduct the necessary research, and venture capital companies weren't interested in an unknown company.

Enter the Small Business Innovation Research (SBIR) program, an attempt to share a small part of the federal R&D budget with small, high-technology firms. The company, which is now called NPI, used a $30,000 grant from the National Science Foundation to hire a scientist to develop the concept. One year later, in 1982, NSF gave the company $177,000 for further development. Today NPI employs 400 people and is a $20 million-a-year leader in plant biotechnology.

“It's a fantastic program,” said Cyrus McKell, the company's vice president for research. “It gives small firms an outlet for innovative research, and allows them to invest where they couldn't before.”

While horror stories abound about federal projects gone awry and gigantic cost overruns, SBIR is a happy exception. Scheduled to expire in 1988, the program was re authorized through 1993 this summer by Congress, with only one negative vote in both houses.

Rave Reviews

Hearings last spring brought rave reviews from officials of the 12 federal agencies that participate in the program. An official at the National Institutes of Health, which had been skeptical of the initial concept, admitted that “we are confident the gap in quality between SBIR awards from NIH and traditional project grants is proving to be evanescent.”

The program is simple. (The original legislation was five pages, and the reauthorization only 21 lines.) Federal agencies with more than $100 million in extramural re search and development funds must award 1.25 percent of their budgets to small businesses (de fined as companies with fewer than 500 employees).

Phase I award winners receive up to $50,000 for a feasibility study. Promising projects can receive up to $500,000 for further research and development under Phase II. The last step, commercialization, does not involve any federal funds.

What has SBIR accomplished? As of September 30, 1985, more than 26,000 proposals had been submitted by small science- and engineering- based firms. There were 3,080 Phase I and 744 Phase II awards, totaling about $355 million. An additional $320 million was to be spent in the 12 months ending September 30, 1986.

High Return

The program is meant to exploit the ability of small businesses to be far more productive than are larger firms. An NSF study found that for every $1 of research spent by a small firm, a medium-sized firm required $4 to achieve the same re suit and a large firm needed $24.

The participating agencies are the departments of Defense, Agriculture, Commerce, Energy, Education, Interior, Transportation, and Health and Human Services, as well as the Environmental Protection Agency, NASA, the NSF, and the Nuclear Regulatory Commission. The projects they have supported include such disciplines as laser engineering, robotics, semi-conductor switches, new chemical compounds, computer information processing analysis, electronics, energy conversion, natural resources and life sciences.

The program has proved to be a model for 30 state efforts. Many exist chiefly to help local firms apply for the federal grants, but some states are beginning to offer their own grants as an added incentive.

The interest in SBIR has ex tended overseas as well. Japan has sent observers to the United States, and Japanese officials hope to begin a similar program within a year. Great Britain has begun a Small Firms Merit Award for Research and Technology (SMART) program modeled after SBIR, and Canada, France, and Germany have approached the U.S. government for information about SBIR.

The new law calls for program audits by the General Accounting Office in 1988 and 1991. “By reaffirming our commitment to the SBIR program for five more years,” said Rep. Nicholas Mayroules (D-Mass.), considered the father of SBIR legislation, “we tell the world that we intend to be winners in the new international economy.”        

Veraska is a freelance writer in Washington, DC.
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Mettler Toledo
BD Biosciences
BD Biosciences