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Washington, DC-- Today Congressman David Wu participated in a committee hearing that focused on the issue of venture capital investment in small businesses which participate in the federal Small Business Innovation Research (SBIR) program. The hearing explored changing the eligibility criteria for businesses which receive both SBIR funds and venture capital investments. The hearing was held by the House Science Subcommittee on Environment, Technology and Standards which has jurisdiction over the SBIR program. Today's hearing was an essential first step in exploring the possibility of changing the SBIR eligibility criteria.
"In Oregon we have several vibrant high-tech start-up companies. Accordingly, I am aware of the difficulties they have in bringing research ideas to proof-of-concept and the need to create a bridge across this gap," stated Congressman Wu. "As this committee begins to focus on this issue, I am hopeful that today's hearing will provide appropriate guidance. It is this committee's responsibility to ensure the SBIR program continues to support the high-tech business sector while promoting U.S. economic competitiveness."
Currently, SBIR regulations allow small business with venture capital investment to participate in the SBIR program only if the venture capital investor is a minority investor (less than 51%). Venture capital companies argue the rule creates a barrier to private-sector investment that ultimately inhibits the growth of start-up companies as well as commercialization, particularly in the biotechnology sector. SBIR regulations prevent those small businesses which are receiving SBIR funds from raising the additional capital necessary to realize their discoveries.
Congressman Wu recognizes that, along with the SBIR program, venture capital has been a critical factor in determining the success of start-up companies and supports changing the eligibility criteria. Congressman Wu is a cosponsor of H.R. 2943, pending legislation that includes the proposed change discussed at today's hearing. In general, H.R. 2943 would allow small businesses to receive SBIR funds who are at least 51 percent owned and controlled by individuals or eligible venture capital companies, as long as they are also not more than 49 percent owned and controlled by a single eligible venture capital company or a group of commonly-controlled eligible venture capital companies. The small business is also eligible if it is majority-owned and controlled by another business that is itself at least 51 percent owned and controlled by individuals. Small business is defined as those with fewer than 500 employees.
In response to today's hearing and in support of H.R. 2493, Todd McLean, Senior Vice President of Qmedrix in Portland shared the following statement:
"The House Science Committee should expand the language of the SBIR Program to allow early-stage, privately held companies, that have a majority of their equity owned by venture capitalist (VCs), access to the benefits of the SBIR Program. My statement is based on the following: One, VCs bring the value of experience to an early-stage company which should increase the probability of success while reducing risk; Two, the due diligence of VCs, followed by the commitment of their (and their investors) money, in itself, should help SBIR in identifying worthwhile ventures to assist with confidence; And three, VCs tend to be a group of individuals who have been very successful. Success breeds success."
In 1982, the Small Business Innovation Development Act established SBIR programs within the major federal research and development (R&D) agencies. The intent of the effort was to increase the participation of small, high technology companies in the federal R&D endeavor. Today there are twelve federal departments that are required to set aside 2.5% of their R&D budget to fund the SBIR program. From fiscal year 1983 through fiscal year 2003, over $15.2 billion in awards have been made for more than 76,000 projects.
An archived webcast and/or a transcript of today's hearing can be found on the House Science Committee website at the following link:
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