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An Assessment of the SBIR Program at the Department of Energy
AN ASSESSMENT OF THE SBIR PROGRAM AT THE DEPARTMENT OF ENERGY
Committee for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program
Policy and Global Affairs
Charles W. Wessner, Editor
NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES
THE NATIONAL ACADEMIES PRESS
Washington, D.C.
www.nap.edu
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An Assessment of the SBIR Program at the Department of Energy
THE NATIONAL ACADEMIES PRESS
500 Fifth Street NW Washington, DC 20001
NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the Councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance.
This study was supported by Contract/Grant No. DASW01-02-C-0039 between the National Academy of Sciences and U.S. Department of Defense, NASW-03003 between the National Academy of Sciences and the National Aeronautics and Space Administration, DE-AC02-02ER12259 between the National Academy of Sciences and the U.S. Department of Energy, NSFDMI-0221736 between the National Academy of Sciences and the National Science Foundation, and N01-OD-4-2139 (Task Order #99) between the National Academy of Sciences and the U.S. Department of Health and Human Services. The content of this publication does not necessarily reflect the views or policies of the Department of Health and Human Services, nor does mention of trade names, commercial products, or organizations imply endorsement by the U.S. government. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project.
International Standard Book Number-13: 978-0-309-11412-7
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Limited copies are available from the Policy and Global Affairs Division, National Research Council, 500 Fifth Street, NW, Washington, D.C. 20001; (202) 334-1529.
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Copyright 2008 by the National Academy of Sciences. All rights reserved.
Printed in the United States of America
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An Assessment of the SBIR Program at the Department of Energy
THE NATIONAL ACADEMIES
Advisers to the Nation on Science, Engineering, and Medicine
The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences.
The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering.
The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine.
The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council.
www.national-academies.org
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Committee for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program
Chair Jacques S. Gansler Roger C. Lipitz Chair in Public Policy and Private Enterprise and Director of the Center for Public Policy and Private Enterprise School of Public Policy
University of Maryland
David B. Audretsch Distinguished Professor and Ameritech Chair of Economic Development Director,
Institute for Development Strategies Indiana University
Gene Banucci Executive Chairman
ATMI, Inc.
Jon Baron Executive Director
Coalition for Evidence-Based Policy
Michael Borrus Founding General Partner
X/Seed Capital
Gail Cassell Vice President,
Scientific Affairs and
Distinguished Lilly Research Scholar for Infectious Diseases
Eli Lilly and Company
Elizabeth Downing CEO
3D Technology Laboratories
M. Christina Gabriel Director,
Innovation Economy The Heinz Endowments
Trevor O. Jones Chairman and CEO
BIOMEC, Inc.
Charles E. Kolb President
Aerodyne Research, Inc.
Henry Linsert, Jr. Chairman and CEO
Martek Biosciences Corporation
W. Clark McFadden Partner
Dewey & LeBoeuf, LLP
Duncan T. Moore Kingslake Professor of Optical Engineering
University of Rochester
Kent Murphy President and CEO
Luna Innovations
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Linda F. Powers Managing Director
Toucan Capital Corporation
Tyrone Taylor President
Capitol Advisors on Technology, LLC
Charles Trimble CEO, retired
Trimble Navigation
Patrick Windham President
Windham Consulting
PROJECT STAFF
Charles W. Wessner Study Director
McAlister T. Clabaugh Program Associate
David E. Dierksheide Program Officer
Sujai J. Shivakumar Senior Program Officer
Jeffrey McCullough Program Associate
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RESEARCH TEAM
Zoltan Acs
University of Baltimore
Alan Anderson Consultant
Philip A. Auerswald
George Mason University
Robert-Allen Baker
Vital Strategies, LLC
Robert Berger
Robert Berger Consulting, LLC
Grant Black
University of Indiana South Bend
Peter Cahill
BRTRC, Inc.
Dirk Czarnitzki
University of Leuven
Julie Ann Elston
Oregon State University
Irwin Feller
American Association for the Advancement of Science
David H. Finifter
The College of William and Mary
Michael Fogarty
University of Portland
Robin Gaster
North Atlantic Research
Albert N. Link
University of North Carolina
Benjamin Roberts
Harvard University
Rosalie Ruegg
TIA Consulting
Donald Siegel
University of California at Riverside
Paula E. Stephan
Georgia State University
Andrew Toole
Rutgers University
Nicholas Vonortas
George Washington University
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POLICY AND GLOBAL AFFAIRS
Ad hoc Oversight Board for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program
Robert M. White, Chair University Professor Emeritus
Electrical and Computer Engineering Carnegie Mellon University
Anita K. Jones Lawrence R. Quarles Professor of Engineering and Applied Science School of Engineering and Applied Science
University of Virginia
Mark B. Myers Senior Vice President, retired
Xerox Corporation
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Contents
PREFACE
xiii
SUMMARY
1
1
INTRODUCTION
11
1.1 SBIR Creation and Assessment,
11
1.2 SBIR Program Structure,
12
1.3 SBIR Reauthorizations,
13
1.4 Structure of the NRC Study,
14
1.5 SBIR Assessment Challenges,
15
1.6 Assessing SBIR at the Department of Energy (DoE),
19
1.6.1 Surveys of DoE SBIR Award-recipient Companies,
19
1.6.2 Case Studies,
21
1.7 Structure of the Report,
24
2
FINDINGS AND RECOMMENDATIONS
25
3
AWARD STATISTICS
42
3.1 Trends in Energy Research and Development,
43
3.2 Size of Individual Awards,
45
3.2.1 Phase I Awards,
46
3.2.2 Phase II Awards,
47
3.3 Geographic Concentration,
47
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3.4 Multiple-Award Winners,
50
3.4.1 SBIR Award Clustering to Support Technology Development,
52
3.4.2 Development Funding Prior to SBIR Award,
54
4
COMMERCIALIZATION
56
4.1 Challenges of Commercialization,
56
4.2 Project Status,
57
4.2.1 Project Discontinuation,
58
4.3 Sales and Licensing,
58
4.3.1 Skew Effects,
59
4.3.2 Sales Expectations and Likely Future Sales,
59
4.3.3 Licensing,
61
4.3.4 Customers,
61
4.3.5 Marketing,
62
4.3.6 Additional Development Funding,
62
4.4 Further Investment: Phase III at DoE,
64
4.4.1 DoE SBIR and Venture Capital (VCs),
64
4.4.2 Equity Investments from Large Corporations,
65
4.4.3 Other Resources,
65
4.4.4 Matching Funds and Cost-sharing,
66
4.4.5 Non-SBIR Federal Funding,
66
4.5 Employment Effects,
66
4.6 Phase I Commercialization,
67
4.6.1 Commercialization Resulting from the Phase I Projects,
67
4.6.2 Follow-on Development Funding Resulting from the Phase I Projects,
68
4.6.3 Other Benefits of Phase I-only Projects,
69
4.7 Multiple-Award Winners,
70
5
AGENCY MISSION
72
5.1 Managing a Program with Multiple Objectives,
72
5.2 Alignment Issues for SBIR and the DoE Mission,
74
5.2.1 Research vs. Commercial Culture,
74
5.2.2 SBIR as a Tax,
74
5.2.3 Administrative Burdens,
74
5.3 Changing Perceptions of SBIR,
75
5.3.1 Supporting Program Missions,
75
5.3.2 Providing Research Quality,
75
5.3.3 Research Impact,
76
5.3.4 Comparative Research Value,
77
5.3.5 Project Ownership,
77
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5.4 Capitalizing on Program Flexibility,
78
5.4.1 Balancing Commercialization and Mission Orientation,
78
5.4.2 Internal Reallocation of Topics Among Programs,
79
6
WOMAN- AND MINORITY-OWNED BUSINESSES
80
6.1 Woman-owned Businesses,
80
6.2 Minority-owned Businesses,
81
6.3 Success Rates for the Different Groups,
82
7
KNOWLEDGE EFFECTS
85
7.1 Publications and Intellectual Property,
85
7.2 Stimulating New Research,
86
7.3 Building Partnerships and Enhancing Networks,
87
7.4 SBIR and the Universities,
88
8
PROGRAM MANAGEMENT
90
8.1 SBIR in the Department of Energy,
90
8.2 Resources for Program Administration,
93
8.3 Topic Generation,
94
8.4 Award Selection,
95
8.4.1 First-step Technical Review,
95
8.4.2 Initial Review Approaches,
96
8.4.3 1995 Process Revisions,
97
8.4.4 Fairness of Competition,
97
8.5 Outreach,
98
8.6 The Application and Award Process: Awardee Comments,
98
8.7 Managing Information on Awards,
99
8.7.1 Reporting Requirements,
99
8.7.2 Freedom of Information Act,
99
8.8 Program Structure,
100
8.8.1 Differences Between Agencies,
100
8.8.2 Award Limits,
100
8.8.3 Time Frames,
100
8.8.4 Gaps between SBIR Phase I and Phase II Funding,
101
8.9 Participation of DoE National Laboratories in SBIR,
101
8.9.1 Overview of DoE National Laboratories,
101
8.9.2 Why SBIR Collaborations Are Not More Frequent,
102
8.10 Developments in Program Administration Since 2003,
103
8.10.1 Online Capabilities and Plans,
103
8.10.2 Program Manager Given More Control,
104
8.10.3 Phase II Supplemental Awards,
104
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8.11 Actions Taken by DoE SBIR Program to Encourage Commercialization,
105
8.11.1 Evidence of Commercialization Included in Phase II Criteria,
105
8.11.2 Commercialization Assistance Services for SBIR Awardees,
105
8.11.3 Collecting Phase III Data,
108
8.11.4 Recognizing Success,
110
APPENDIXES
A DOE SBIR PROGRAM DATA
113
B NRC PHASE II SURVEY
135
C NRC PHASE I SURVEY
155
D CASE STUDIES
165
Airak, Inc.,
165
Atlantia Offshore Limited,
170
Creare, Inc.,
176
Diversified Technologies, Inc.,
185
Eltron Research, Inc.,
193
IPIX, Inc.,
199
NanoSonic, Inc.,
204
NexTech Materials, Inc.,
209
Princeton Polymer Laboratories, Inc.,
216
Thunderhead Engineering,
221
E
BIBLIOGRAPHY
227
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Preface
Today’s knowledge economy is driven in large part by the nation’s capacity to innovate. One of the defining features of the U.S. economy is a high level of entrepreneurial activity. Entrepreneurs in the United States see opportunities and are willing and able to take on risk to bring new welfare-enhancing, wealth-generating technologies to the market. Yet, while innovation in areas such as genomics, bioinformatics, and nanotechnology present new opportunities, converting these ideas into innovations for the market involves substantial challenges.1 The American capacity for innovation can be strengthened by addressing the challenges faced by entrepreneurs. Public-private partnerships are one means to help entrepreneurs bring new ideas to market.2
The Small Business Innovation Research (SBIR) program is one of the largest examples of U.S. public-private partnerships. Founded in 1982, SBIR was designed to encourage small business to develop new processes and products and to provide quality research in support of the many missions of the U.S. government. By including qualified small businesses in the nation’s R&D effort, SBIR grants are intended to stimulate innovative new technologies to help agencies meet the specific research and development needs of the nation in many areas, including health, the environment, and national defense.
1
See Lewis M. Branscomb, Kenneth P. Morse, Michael J. Roberts, and Darin Boville, Managing Technical Risk: Understanding Private Sector Decision Making on Early-Stage Technology Based Projects, Washington, D.C.: National Institute of Standards and Technology, 2000.
2
For a summary analysis of best practice among U.S. public-private partnerships, see National Research Council, Government-Industry Partnerships for the Development of New Technologies: Summary Report, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2002.
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As the SBIR program approached its twentieth year of operation, the U.S. Congress asked the National Research Council to conduct a “comprehensive study of how the SBIR program has stimulated technological innovation and used small businesses to meet federal research and development needs” and make recommendations on still further improvements to the program.3 To guide this study, the National Research Council drew together an expert committee that included eminent economists, small businessmen and women, and venture capitalists. The membership of this committee is listed in the front matter of this volume. Given the extent of ‘green-field research’ required for this study, the Steering Committee in turn drew on a distinguished team of researchers to, among other tasks, administer surveys and case studies, and to develop statistical information about the program. The membership of this research team is also listed in the front matter to this volume.
This report is one of a series published by the National Academies in response to the congressional request. The series includes reports on the Small Business Innovation Research Program at the Department of Defense (DoD), the Department of Energy (DoE), the National Aeronautics and Space Administration (NASA), the National Institutes of Health (NIH), and the National Science Foundation (NSF)—the five agencies responsible for 96 percent of the program’s operations. It includes, as well, an Overview Report that provides assessment of the program’s operations across the federal government, based on the assessments of the SBIR program at each of the five agencies. Other reports in the series include a summary of the 2002 conference that launched the study, and a summary of the 2005 conference on SBIR and the Phase III Challenge of Commercialization that focused on the Department of Defense and NASA.
PROJECT ANTECEDENTS
The current assessment of the SBIR program follows directly from an earlier analysis of public-private partnerships by the National Research Council’s Board on Science, Technology, and Economic Policy (STEP). Under the direction of Gordon Moore, Chairman Emeritus of Intel, the NRC Committee on Government Industry Partnerships prepared eleven volumes reviewing the drivers of cooperation among industry, universities, and government; operational assessments of current programs; emerging needs at the intersection of biotechnology and information technology; the current experience of foreign government partnerships and opportunities for international cooperation; and the changing roles of government laboratories, universities, and other research organizations in the national innovation system.4
3
See SBIR Reauthorization Act of 2000 (H.R. 5667—Section 108).
4
For a summary of the topics covered and main lessons learned from this extensive study, see National Research Council, Government-Industry Partnerships for the Development of New Technologies: Summary Report, op. cit.
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This analysis of public-private partnerships included two published studies of the SBIR program. Drawing from expert knowledge at a 1998 workshop held at the National Academy of Sciences, the first report, The Small Business Innovation Research Program: Challenges and Opportunities, examined the origins of the program and identified some operational challenges critical to the program’s future effectiveness.5 The report also highlighted the relative paucity of research on this program.
Following this initial report, the Department of Defense asked the NRC to assess the Department’s Fast Track Initiative in comparison with the operation of its regular SBIR program. The resulting report, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, was the first comprehensive, external assessment of the Department of Defense’s program. The study, which involved substantial case study and survey research, found that the SBIR program was achieving its legislated goals. It also found that DoD’s Fast Track Initiative was achieving its objective of greater commercialization and recommended that the program be continued and expanded where appropriate.6 The report also recommended that the SBIR program overall would benefit from further research and analysis, a perspective adopted by the U.S. Congress.
SBIR REAUTHORIZATION AND CONGRESSIONAL REQUEST FOR REVIEW
As a part of the 2000 reauthorization of the SBIR program, Congress called for a review of the SBIR programs of the agencies that account collectively for 96 percent of program funding. As noted, the five agencies meeting this criterion, by size of program, are the Department of Defense, The National Institutes of Health, the National Aeronautics and Space Administration, the Department of Energy, and the National Science Foundation.
Congress directed the NRC, via HR 5667, to evaluate the quality of SBIR research and evaluate the SBIR program’s value to the agency mission. It called for an assessment of the extent to which SBIR projects achieve some measure of commercialization, as well as an evaluation of the program’s overall economic and noneconomic benefits. It also called for additional analysis as required to support specific recommendations on areas such as measuring outcomes for agency strategy and performance, increasing federal procurement
5
See National Research Council, The Small Business Innovation Research Program: Challenges and Opportunities, Charles W. Wessner, ed., Washington, D.C.: National Academy Press, 1999.
6
See National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, Charles W. Wessner, ed., Washington, D.C.: National Academy Press, 2000. Given that virtually no published analytical literature existed on SBIR, this Fast Track study pioneered research in this area, developing extensive case studies and newly developed surveys.
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of technologies produced by small business, and overall improvements to the SBIR program.7
ACKNOWLEDGMENTS
On behalf of the National Academies, we express our appreciation and recognition for the insights, experiences, and perspectives made available by the participants of the conferences and meetings, as well as survey respondents and case study interviewees who participated over the course of this study. We are also very much in debt to officials from the leading departments and agencies. Among the many who provided assistance to this complex study, for this volume, we are especially in debt to Larry James of the Department of Energy and Robert Berger, formerly of the Department of Energy.
The Committee’s research team deserves recognition for their instrumental role in the preparation and many revisions of this report. In that regard, special thanks are due to Philip Auerswald of George Mason University, Nicholas Vonortas of George Washington University, Grant Black of Georgia State University, and for the report’s completion, Robin Gaster of North Atlantic Research Inc. Without their collective efforts, amidst many other competing priorities, it would not have been possible to prepare this report. Among the many contributing Committee members, special thanks are due to Charles Kolb of Aerodyne Research.
NATIONAL RESEARCH COUNCIL REVIEW
This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Academies’ Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the process.
We wish to thank the following individuals for their review of this report: David Bodde, Clemson University; George Eads, CRA International; Maxine Savitz (Retired), Honeywell, Inc.; and Roland Tibbets, SEARCH Corporation.
Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or
7
Chapter 3 of the Committee’s Methodology Report describes how this legislative guidance was drawn out in operational terms. National Research Council, An Assessment of the Small Business Innovation Research Program—Project Methodology, Washington, D.C.: The National Academies Press, 2004. Access this report at <http://www7.nationalacademies.org/sbir/SBIR_Methodology_Report.pdf>.
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recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Robert Frosch, Harvard University, and Robert White, Carnegie Mellon University. Appointed by the National Academies, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.
Jacques S. Gansler
Charles W. Wessner
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