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Jul 14, 2008

No soup for you (no more) - VC-backed companies shooting for SBIR eligibility

  • A brief overview of the last couple of years reveals that applications for SBIR grants have gone down dramatically: -21% as compared to 2004. Now for everyone who is unfamiliar with the SBIR here's a quick overview.

    The SBIR stands for small business innovation research meaning this program is meant to provide already formed small businesses with the funds to complete a phase 1 (prototype stage) or phase 2 (development) project. The maximum amount is $100,000 for phase 1 and $750,000 for phase 2. Small businesses have competed for the money since the early 1980s, but companies majority owned by venture capitalists were effectively barred from participating in the program in 2003.

    This all stands to change as Congress is set to renew legislation forbidding VC-backed companies to participate as stated earlier and predictably this leads to worries that smaller operations will be squeezed out.

    However a caveat in this legislation is that for example large publicly traded companies as well as large private companies are free to pursue such grants, simply because they are less than 51% VC-backed. This is an obvious flaw that needs to be addressed, otherwise a struggling VC-backed company is unfairly excluded.

    Yes, VC-backing means you have more money but that doesn't protect you from the uncertainties of the market nor does it allow you the freedom to pursue avenues not approved by VCs such as orphan disease treatments. The issue is not black and white so I for one welcome discussion on it and would rather not exclude VC-backed ventures but would rather go after market capitalization, i.e. a company that is values at more than say $100M since that I feel is a better indicator for the amount of funding and work a venture or company has done.


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