[Senate Hearing 113-738]
[From the U.S. Government Publishing Office]
S. Hrg. 113-738
EXAMINING FEDERAL EFFORTS TO ENCOURAGE SMALL BUSINESS INNOVATION
=======================================================================
FIELD HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
AUGUST 19, 2013
__________
Printed for the Committee on Small Business and Entrepreneurship
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.fdsys.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
86-259 PDF WASHINGTON : 2015
__________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office
Internet: bookstore.gpo.gov. Phone: toll free (866) 512-1800; DC area (202)512-1800
Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED THIRTEENTH CONGRESS
----------
MARY L. LANDRIEU, Louisiana, Chair
JAMES E. RISCH, Idaho, Ranking Member
CARL LEVIN, Michigan DAVID VITTER, Louisiana
TOM HARKIN, Iowa MARCO RUBIO, Florida
MARIA CANTWELL, Washington RAND PAUL, Kentucky
MARK L. PRYOR, Arkansas TIM SCOTT, South Carolina
BENJAMIN L. CARDIN, Maryland DEB FISCHER, Nebraska
JEANNE SHAHEEN, New Hampshire MIKE ENZI, Wyoming
KAY R. HAGAN, North Carolina RON JOHNSON, Wisconsin
HEIDI HEITKAMP, North Dakota JEFFREY CHIESA, New Jersey
ED MARKEY, Massachusetts
Jane Campbell, Democratic Staff Director
Skiffington Holderness, Republican Staff Director
C O N T E N T S
----------
Opening Statements
Page
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire.......... 1
Ayotte, Hon. Kelly, a U.S. Senator from New Hampshire............ 4
Witnesses
Torbick, Ph.D., Nathan, Applied GeoSolutions, Newmarket, NH...... 5
Gittell, Ph.D., Ross, Chancellor, Community College System of New
Hampshire, Concord, NH......................................... 9
Oliver, Ph.D., Manny, Director, Small Business Innovation
Research (SBIR) and Small Business Technology Transfer (STTR),
U.S. Department of Energy, Washington, DC...................... 14
Rauwerdink, Adam, Business Development Manager, SustainX, Inc.,
Seabrook, NH................................................... 18
Reder, Ph.D., Jake, Co-Founder, Director, and CEO, Celdara
Medical, LLC, Lebanon, NH...................................... 21
Ferneau, Philip, Borealis Ventures, Hanover, NH.................. 30
Chynoweth, Graham, Chief Operating Officer, DYN, Inc.,
Manchester, NH................................................. 38
Brown, Jr., Hon. Edsel M., Assistant Administrator, Office of
Technology, U.S. Small Business Administration, Washington, DC. 43
Bundas, Jason, Manager, Infrared Systems, QmagiQ, LLC, Nashua, NJ 47
Kline-Schoder, Ph.D., Bob, Creare, Inc., Hanover, NH............. 52
Alphabetical Listing
Ayotte, Hon. Kelly
Opening statement............................................ 4
Brown, Jr., Edsel M.
Testimony.................................................... 43
Prepared statement........................................... 45
Bundas, Jason
Testimony.................................................... 47
Prepared statement........................................... 49
Chynoweth, Graham
Testimony.................................................... 38
Prepared statement........................................... 40
Ferneau, Philip
Testimony.................................................... 30
Prepared statement........................................... 33
Gittell, Dr. Ross
Testimony.................................................... 9
Prepared statement........................................... 11
Kline-Schoder, Dr. Bob
Testimony.................................................... 52
Prepared statement........................................... 54
Oliver, Dr. Manny
Testimony.................................................... 14
Prepared statement........................................... 15
Rauwerdink, Adam
Testimony.................................................... 18
Prepared statement........................................... 19
Reder, Dr. Jake
Testimony.................................................... 21
Prepared statement........................................... 23
Shaheen, Hon. Jeanne
Opening statement............................................ 1
Torbick, Dr. Nathan
Testimony.................................................... 5
Prepared statement........................................... 7
EXAMINING FEDERAL EFFORTS TO ENCOURAGE SMALL BUSINESS INNOVATION
----------
MONDAY, AUGUST 19, 2013
United States Senate,
Committee on Small Business
and Entrepreneurship,
Manchester, NH.
The committee met, pursuant to notice, 1:17 p.m., in the
Windermere Conference Room, 4th Floor, Southern New Hampshire
University, College of Online and Continuing Education, 33
South Commercial Street, Manchester, NH, Hon. Jeanne Shaheen,
presiding.
Present: Senators Shaheen and Ayotte.
OPENING STATEMENT OF HON. JEANNE SHAHEEN, A U.S. SENATOR FROM
NEW HAMPSHIRE
Senator Shaheen. Good afternoon, everyone. You have to hit
the gavel to make it official, you know.
[Laughter.]
I want to call this hearing of the U.S. Senate Committee on
Small Business and Entrepreneurship to order, and I want to
thank you all very much for coming. And I'm delighted to be
joined today by Senator Ayotte.
We are here to discuss a topic that is very important to
New Hampshire businesses, to the future competitiveness of this
country, and that is how we can support innovation in our small
businesses.
I am very pleased to be joined by Senator Ayotte to hold
this hearing today, although she is not a member of the Small
Business Committee. And some of you may have been here several
years ago when we did a similar hearing when we were both
members of the Small Business Committee. She, however, is now
on the Commerce Committee, and they also have jurisdiction over
many of the issues that we're going to be discussing today.
So it is very nice to be here with my co-Senator from New
Hampshire. And as Dean Kamen said earlier this afternoon, we do
work together in the interest of New Hampshire. So just to
reassure everybody who thinks that none of us talk in
Washington, the New Hampshire delegation actually does talk to
each other.
I also want to thank everyone who has come today to New
Hampshire to share your thoughts and your expertise, and thank
Paul LeBlanc and Southern New Hampshire University for hosting
us this afternoon. I think Paul is here somewhere. There he is.
Thank you very much for having us here and for all of your help
in setting this hearing up.
I also want to recognize a few people who are in the
audience. We have Seth Goodall, who is the new regional
administrator for New England at the Small Business
Administration. Seth, thank you for being here. Jeff Rose I
think is here, although I have not seen him. He is the
commissioner of the Department of Resources and Economic
Development. So if he is not here yet, I think he will be here
shortly. And, of course, Dean Kamen. It is always nice to have
you join us, Dean.
I also want to point out that this is an official hearing
of the Senate's Committee on Small Business and
Entrepreneurship, so this hearing will be on the official
record of the committee, and will help inform the committee's
work going forward. We have an official reporter from the
committee who is here. She is a staff member of the committee,
and actually currently serves as the Small Business Committee's
Ranking Member, Senator Jim Risch from Idaho--she is on his
staff. So very nice to have you here, Meredith.
We also have staff from Senator Ayotte's office. I will let
her introduce them so that I don't make any mistakes and miss
anyone. And also am pleased to have staff from my office--Mike
Vlacich who is my State director is here. And Scott Merrick and
Chris Neary are also here, and they all worked very hard to
help put together this hearing.
I wanted to begin by talking a little bit about how the
process is going to work for the hearing this afternoon.
Senator Ayotte and I will give opening statements. Then we
would like to have each of our panelists give a statement of
about two minutes to start off the discussion and give your
perspectives on the topic. And we have a number of innovative
New Hampshire companies from the software industry, to energy,
to biomedical science here, so we are well represented. We also
have our community college system represented, as well as
venture capital, and members of the New Hampshire High Tech
Council, and Federal agencies, including the Small Business
Administration and the Department of Energy.
We have two of the major R&D agencies, the Department of
Defense and the National Institutes of Health, who were invited
but who were not able to be here this afternoon due to the
budget challenges of sequestration. So we are especially
excited to have Manny Oliver from the Department of Energy
and--Edsel Brown from the SBA here. So thank you both for
joining us.
We are looking forward to an open conversation where not
only are we asking questions, but you all are also talking
about the issues that you've seen and responding to each other
as part of this roundtable. So it is going to be a little bit
modified from the traditional committee hearing in that we will
ask all of you to engage in the conversation.
If you have a point that you want to make, if you will just
take your placard and put it on its side like this so that we
can know to call on you. We will know who wants to weigh in at
a particular time.
I also should note that this hearing will stay open for two
weeks on the record, so anyone who would like to submit a
statement or any other comments, you will have the opportunity
to do that, and it will be added to the record.
So as you all know, we are here to talk about innovation.
It is a critical issue as we think about the future prosperity
of this country. We need to continue to be a leader in science
and technology. If we do not do that, it will be challenging
for us to continue to compete because we are not going to
compete with some of the developing world--India and China--in
terms of low wage manufacturing jobs. That is not where we are
going to be able to continue to be a strong country. We need to
continue to innovate if we are going to create good jobs and
remain competitive.
Our future is to be the global leader in science and
technology. We make the best, most innovative products and
services, and that ingenuity and excellence is our chief
economic strength as a Nation.
Small businesses are the backbone of our economy,
especially in New Hampshire, and they are often the drivers of
innovation and new technologies. They employ nearly 40 percent
of America's scientists and engineers, produce more than 14
times more patents than large businesses and universities, and
they produce patents that are of higher quality and more than
twice as likely to be cited according to the National Academy
of Sciences.
Now, I understand that it is business and not government
that creates good jobs. But I do think that Federal policies,
as well as State and local, have a role to play in how we can
help our small businesses create jobs. This is especially true
in innovative and growing fields like biomedicine, energy,
software, and other critical areas that will lay the foundation
for our long-term economic growth as a Nation.
One of the very successful programs that has happened at
the Federal level is the Small Business Innovation Research
program. And we feel especially proud of this because Senator
Warren Rudman is the senator who introduced the legislation.
And it is not just a typical grant program. It helps small
businesses compete for research and development that Federal
agencies need to accomplish their missions.
Even though small businesses produce more patents than
large businesses and universities, they receive only about four
percent of Federal R&D dollars. Because of the SBIR program,
small businesses that otherwise would not be able to compete
for Federal R&D funding can win competitive awards that help
them develop new products and customers, and create new jobs.
SBIR leverages the entrepreneurial drive of small businesses to
encourage the development of technologies and the commercial
applications.
Now, for years the program operated on short-term
extensions, which was bad policy both from the business
perspective and from the Federal agency's perspective.
Fortunately, two years ago the Small Business Committee was
able to pass a six-year reauthorization that significantly
increases the amount of R&D dollars going to small businesses,
as well as provide some certainty that businesses need in order
to plan. Both Senator Ayotte and I supported that because SBIR
has proven to be such a highly successful public/private
partnership.
And it is no surprise that New Hampshire businesses compete
very well under the program, and we will hear from many of you
this afternoon to talk a little about that.
So, we are looking forward to this discussion. We also want
to hear from you about changes or ideas that you have for what
we can do better in Washington. And when we did this hearing
two years ago, Senator Ayotte and I took the information that
we got from people testifying, and we went back to Washington,
introduced legislation, and several of the provisions of that
legislation have actually been voted on in the Senate. So, this
is a real opportunity for us to look at what we can do to
address the concerns that all of you have.
So, thank you very much. I will now turn to Senator Ayotte.
STATEMENT OF HON. KELLY AYOTTE, A U.S. SENATOR FROM NEW
HAMPSHIRE
Senator Ayotte. Thank you so much, Senator Shaheen. It is
an honor to be here with you today and to work with you on
these important issues that impact New Hampshire small
businesses. And it is great to be together in another one of
these hearings because as Senator Shaheen just said, we got
great feedback from the last hearing we had, and were able to
translate that into legislation to make sure that we were doing
things more effectively with the Federal agencies that you
interact with.
So I am honored to be here today with you, Senator Shaheen,
and thank you so much for including me in this.
I also want to thank Southern New Hampshire University and
Paul LeBlanc for hosting this. I think this is an appropriate
setting to host this topic with the importance of education
and, as Senator Shaheen has mentioned, particularly in the STEM
fields where we see gaps that need to be filled to make sure
that we continue to be the most innovative Nation in the world,
which has driven our economy. And we are so proud of it.
I also want to thank very much the Federal agencies that
are here, the SBA and the Department of Energy, all of you who
are here today. I know so many entrepreneurs are here from New
Hampshire, small business owners. This is a wonderful
opportunity for us to hear from not only the public side, but
particularly the private side, to get your viewpoints on how we
can do better in Washington, as Senator Shaheen just said.
With me are two members of my staff, Tom DeRosa and
Samantha Roberts. And so, obviously after this, if there are
any particular issues that we can help you with or that you
want to talk to us about, I would be honored to do that.
As Senator Shaheen mentioned, as members of the Senate
Small Business Committee in 2011, we worked together, along
with our Senate colleagues, to ensure that the Small Business
Innovation Research and Small Business Technology Transfer
programs were at long last given long-term reauthorization. So
much of what happens in Washington is done on such a short-term
basis right now, and one of the things we understand is that it
is very difficult for you to plan with your business when we
keep doing the short-term, whether it is a continuing
resolution in terms of funding the government.
But an important program like this that, of course, Warren
Rudman, who was just such a wonderful senator for New
Hampshire, and unfortunately we lost this year, came up with
this great idea. And we are going to hear about the impact of
this here, not only in New Hampshire, but across the Nation, on
entrepreneurship, on innovation, and the spinoffs in jobs that
the private sector has created as a result of this important
program.
Finally, I come from a small business family. I appreciate
very much how difficult it is for many for you. In my family,
we took our savings. We relied on credit to start a family
business. And I know that many of you took significant risk to
start your business and to be where you are today as successful
business owners.
So we would like to hear also the obstacles and worries you
have as small business owners, and how the Federal government
can make sure that we create the best climate for you to
innovate, to grow, because the foundation of the American
economy is innovation and entrepreneurship. And if we do not
continue to be a leader in innovation and entrepreneurship, we
will not see the growth that we have seen. We will not see the
wonderful technologies and products that this country has
produced. And, most importantly, we will not be able to put the
next generation to work.
And so, I very much want to hear from you today on any
regulatory challenges that you face, anything that you think
that we can do better as a government to make sure that we
continue to be the most innovative country in the world.
So thank you so much for being here today. And I want to
thank you again, Senator Shaheen, for all of the work that we
have been able to do together and for inviting me to this
hearing.
Senator Shaheen. Thank you very much. Let me just introduce
our panelists this afternoon before I turn it over to you all
to make your statements.
We have Dr. Bob Kline-Schoder, who is the president of
Creare. Next, Jason Bundas, who is the manager of Infrared
Systems for QmagiQ. Edsel Brown, who is the assistant
administrator of the Office of Technology of the Small Business
Administration. Thank you for joining us. Gray Chynoweth is the
chief operating officer from Dyn. Thank you. Philip Ferneau,
who is with Borealis Ventures, a venture capital business. And
at this end, Dr. Nathan Torbick, who is from Applied
GeoSolutions. Thank you for being here. Ross Gittell, who is
the chancellor of the Community College System of New
Hampshire. Very nice to have you here, Ross. And Manny Oliver,
who is with the Small Business Innovation Research and
Technology Business--the Small Business Technology Transfer
programs with the U.S. Department of Energy. Nice to have you
here. And Adam Rauwerdink, who is the business development
manager from SustainX. And finally, Jake Reder, who is with
Celdara Medical in Lebanon.
Thank you all very much for being here. I will ask, Dr.
Torbick, if you would like to go first.
STATEMENT OF NATHAN TORBICK, Ph.D., APPLIED GEOSOLUTIONS,
NEWMARKET, NH
Dr. Torbick. Thanks for inviting me here. My name is Nathan
Torbick. I am from Applied GeoSolutions. And also thanks to
Southern New Hampshire University. I just want to say I hear
their soccer team is ranked seventh in the Nation, so I just
want to make sure I got that on the record. And I will be very
brief, very direct. We have a lot of people here, and I am sure
we have many things to talk about. So I will not just reiterate
my resume at this point.
The SBIR program has been instrumental in having the agency
go from a pure R&D company to working with economic
institutions, to truly commercializing that, to opening up new
revenue streams. Our first SBIR was in 2005. We started in 2002
with basically one professor. We started consulting after we
spun off from the University of New Hampshire. From that, NASA
phase one and phase two awards in 2005 and 2008, to about 15
people today. We have had a threefold return on our investment
from that original SBIR, so it does work. There are companies
out there that move onto phase three and continue and continue.
And just at the top level, kind of the two or three main
issues that I would like to emphasize is, one, just if there
can be more uniformity across agencies--NASA, USDA, EPA. They
all have their own hoops to jump through. My total office is 15
people. If I have to spend half my time kind of just doing
different paperwork for different agencies, that really takes
away from my time working on technologies, working on
innovation.
Consistency, which I think you both mentioned. A continuing
resolution makes it hard to plan. Phase ones are very short.
I'm thinking can I hire somebody, can I not hire somebody? If I
do not know what revenue streams are coming through the door,
it makes it tricky for me to take that step and hire somebody
new.
And then, just three, I think more connection between some
of the program managers and some of the small businesses out
there. If we can get them to our shop, to the field, if I can
get in their rolodex more just to hear about what we are
hearing, what they are doing. So better connection between some
of the managers and some of the small businesses.
Thanks.
[The prepared statement of Dr. Torbick follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Great. Thank you.
Dr. Gittell.
STATEMENT OF ROSS GITTELL, Ph.D., CHANCELLOR, COMMUNITY COLLEGE
SYSTEM OF NEW HAMPSHIRE, CONCORD, NH
Dr. Gittell. Yes. I am on this panel from a different
perspective than the other panelists. I'm not a business
person, but as chancellor of the community college system, I
interact with businesses quite a bit. The community college
system in New Hampshire is focused on aligning education and
training programs with skills required by small businesses
across the State of New Hampshire.
I would like an increase in the Federal government's focus
on skills development, particularly for innovating companies.
This could help create well paying jobs.
The reality when I talk to businesses across the State--
innovating businesses--is that small businesses cannot
innovate, nor compete effectively, without an appropriately
skilled workforce. The skilled workforce for business
innovation includes highly skilled engineers and scientists and
Ph.D.s in the sciences and engineering. But it also includes
so-called middle-skilled workers, those who have more than a
high school degree, but less than a bachelor's degree.
A recent Brookings Institute study, released in June of
this year, identified that over 50 percent of science,
technology, engineering, and mathematics jobs--the STEM jobs--
go to people with less than a bachelor's degree. This is the
core workforce for many of our innovating companies. These
workers, with the middle skills, require specific education and
training in the effective application of technology at the
workplace. And this is a focus area for the community college
system of New Hampshire, and we are seeing a lot of
opportunities to expand our programs in partnership with
industry in this way.
The community college system includes seven regional
colleges and three academic centers geographically dispersed
across the State. This is very important because we cannot have
innovative companies across the State of New Hampshire if we do
not have an appropriately skilled workforce for those
innovating companies. So whereas the SBIR program has been very
successful, and, as Senator Shaheen mentioned, New Hampshire
ranks very high in terms of SBIR awards in Phase I and Phase
II. Awards concentrated around the greater Hanover-Lebanon area
and close to UNH--they are not widely dispersed across the
State of New Hampshire. And part of that is these companies
have difficulty finding appropriately skilled workers
throughout the State of New Hampshire.
So the community colleges across the State are focused on
education and training programs in skills required by
innovating businesses across the State of New Hampshire. And,
by doing that, we hope to provide the workforce for these
companies to grow, and also to launch the next generation of
entrepreneurs across the State of New Hampshire across a
variety of fields. We are focused on advanced manufacturing, we
also have programs in computer programming, and other fields
related to innovation.
An area where we see an opportunity for growth is with
regards to the capability of community colleges to be involved
in so-called tech transfer activities. We have highly-
innovative companies in the State of New Hampshire, and some of
the new technologies, some of the new technological processes
that they are inventing could be applied across a broad range
of industries in the State of New Hampshire, including many
small businesses that then could enhance their competitive
position.
I was fortunate to take a trip recently with Chris Way with
the Department of Resources and Economic Development and others
into Quebec. And Quebec has a very interesting model for tech
transfers in their community college affiliates, where their 40
community colleges across the province provide tech transfer
capabilities for businesses to come into the community
colleges, work with community college faculty and students,
and, transfer technology to the companies, and enable
innovation to take place more readily.
So, I will end my testimony there. I think there are a lot
of opportunities to expand what we do in the innovation base
across the State of New Hampshire.
[The prepared statement of Dr. Gittell follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you.
Dr. Oliver.
STATEMENT OF MANNY OLIVER, Ph.D., DIRECTOR, SMALL BUSINESS
INNOVATION RESEARCH AND SMALL BUSINESS TECHNOLOGY TRANSFER,
U.S. DEPARTMENT OF ENERGY, WASHINGTON, DC
Dr. Oliver. Senator Shaheen, Senator Ayotte, thank you for
the opportunity to participate in this roundtable today. As
Senator Shaheen mentioned, I am director of the Department of
Energy's Small Business Innovation Research and Small Business
Technology Transfer programs.
Senator Shaheen. Can I just ask you, do you have your mic
on?
Dr. Oliver. Can you hear me? Okay, sorry. Leveraging small
business innovation is really the objective of the SBIR and
STTR programs. They foster technological innovation in areas
aligned with the DOE mission, which is clean energy, scientific
leadership, and nuclear security. They also increase private
sector commercialization of innovations derived from Federal
R&D, thereby increasing competition, productivity, and economic
growth. In Fiscal Year 2012 with a budget of $188 million, DoE
issued five SBIR and STTR solicitations and made 257 Phase I
awards and 110 Phase II awards.
We have worked aggressively to streamline and increase the
transparency of these programs and to increase flexibility as
provided by the recent National Defense Authorization Act of
Fiscal Year 2012. Over the past two years we have decreased the
time to review and select awardees from five and a half months
to three months. We have also posted our solicitation schedules
one year in advance, and we have made extensive use of webinars
to educate small businesses about our topic areas and also the
application process.
In addition, we have included tech transfer opportunities
both from universities and DoE National Labs in our
solicitations. And finally, we have--to eliminate the funding
gap that occurs between Phase I and Phase II--implemented this
past year a Fast-Track application process, which is
essentially a combined Phase I and Phase II application.
Over the past two years we have also placed increased
emphasis on commercialization outcomes, while at the same time
preserving the emphasis on addressing high risk R&D
opportunities aligned with the DoE mission. We have added a
requirement for a brief Phase I commercialization plan. We have
provided additional flexibility in our Phase II
commercialization plan to accommodate longer time horizons for
commercialization. And finally, we revamped our
commercialization assistance program to be more accommodating
to the wide variety of needs we have heard from small business.
I am happy to take feedback or questions about our
programs, and look forward to contributing to this discussion.
[The prepared statement of Dr. Oliver follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you.
Mr. Rauwerdink.
STATEMENT OF ADAM RAUWERDINK, BUSINESS DEVELOPMENT MANAGER,
SUSTAINX, INC., SEABROOK, NH
Mr. Rauwerdink. To the Senate Committee on Small Business
and Entrepreneurship, good afternoon. I am Adam Rauwerdink, the
manager of business development for SustainX, Inc. out of
Seabrook, New Hampshire. And on behalf of SustainX, I would
like to take a quick moment to thank you for your broad efforts
in support of small businesses like us, and to share how the
SBIR program, in particular, has played a critical role in our
development.
Back in 2008, SustainX received both phase one and phase
two SBIR awards. When we received the initial phase one award
in 2008, that allowed us to hire our first full-time employee,
to move into a 2,000 square foot facility in Lebanon, New
Hampshire, and to quickly leverage $500,000 in additional
private funding.
Today we are on the cusp of commissioning our first
commercial-scale system. The initial technical validation that
was made possible through the SBIR program enabled us to create
nearly 40 high-quality, full-time jobs here in New Hampshire,
to leverage over $30 million in additional funding from both
the private and public sources, and to move to our current
facility, which is a 40,000 square foot facility, in Seabrook,
New Hampshire.
Likewise, I would also like to thank the State of New
Hampshire through the Borealis Ventures' Granite Fund from Mr.
Phil Ferneau, as well as the Green Launching Pad, which Ross
was instrumental in, and also our members of Congress for their
support.
Despite our rapid growth and our success, we are still a
small business, and we can still benefit greatly from the
programs made possible through the Small Business
Administration. One recent change I would like to highlight in
the recent changes is the clarity in the new SBIR size rules,
which allows small businesses, like us and others, to continue
their culture of innovation, even after initial venture capital
funding.
I thank you once again for your efforts in support of small
businesses like us, and ask for your continued support going
forward. Thank you.
[The prepared statement of Mr. Rauwerdink follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you.
Dr. Reder.
STATEMENT OF JAKE REDER, Ph.D., CO-FOUNDER, DIRECTOR, AND CEO,
CELDARA MEDICAL, LLC, LEBANON, NH
Dr. Reder. Good afternoon Senator Shaheen, Senator Ayotte,
and members of the committee. My name is Jake Reder, and I am
the Chief Executive Officer of Celdara Medical. Thank you for
hosting this discussion and for seeking direct input from the
small business community.
Celdara Medical is an independent biotechnology company
located in Lebanon, New Hampshire. Michael Fanger and I co-
founded the company in 2008 to address the challenge of
translating academic innovations into products and services
that can help patients. The SBIR program has helped us bring a
diagnostic service to market, prepare a cancer therapy for the
clinic, and advance four other therapies, all of which are at
different stages of development.
Our thesis is that valuable medical innovation can be found
at great universities across the country. However, in the
absence of a local ecosystem of entrepreneurs and investors,
the process of translating discoveries into products and
services must be actively managed, and we manage this process.
We work in the life sciences sector where open innovation
has been the rule for decades. Through licensing agreements,
joint development agreements, joint ventures, financial
investment, and a myriad of other contracts, companies now work
within a highly interconnected value chain rather than relying
solely upon internal staff. We are a link in this value chain.
The cost to bring a new drug to market is over a billion
dollars. These costs start low, then rapidly escalate. Each
step forward in the value chain is significantly more expensive
than the previous. Each link in the value chain also relies
upon different sources of funding.
Universities rely heavily upon Federal funding. Small
businesses use a combination of Federal funding, angel or
venture investment, and partnerships with large companies. The
NIH budget is just over $30 billion, but the amount dedicated
to small businesses is less than $0.7 billion, while the number
of scientists and engineers working in small businesses is more
than double the number working in the American university
system.
Of course small businesses can access other sources of
funding. Venture capital is an obvious one. Unfortunately this
is an industry in severe contraction. Only 20 life sciences
companies received venture capital funding for the first time
in the first quarter of 2013, the fewest since 1995. Compare
this to the 1,129 firms that received funding from the NIH SBIR
program in Fiscal Year '12.
The SBIR program is outstanding and could be improved. The
question is not how are we doing, but rather what could we do
today to maximize our impact on the future? We greatly
appreciate the opportunity to make the following
recommendations:
First, significantly expand funding to the SBIR program.
The dearth of alternative sources of capital has tightened a
pre-existing bottleneck between academic discovery and the
marketplace. Opening the early development stage bottleneck
will result in non-linear benefits not only to small business,
but to the entire innovation value chain and American society
at large. The pace of innovation is overwhelming the SBIR
program.
Second, increase agency flexibility. SBIR firms participate
in most sectors of the economy, and each sector has its own
dynamic. The recent reauthorization has resulted in a rigid
application of rules, including award size rules, across
agencies. It is well appreciated that a technical proof-of-
concept or, indeed, any technical milestone, has different
costs in different sectors. Agencies should be allowed to
exercise judgment regarding the appropriateness of award size.
A one-size-fits-all approach is unsuitable.
Third and finally, continue to improve the efficiency of
the innovation value chain itself. The open innovation model
not only highlights the importance of Federal structures and
laws, but also directly benefits from them. For instance,
technology transfer offices, born of the Bayh-Dole Act, are one
form of technology market, but one whose efficiency could be
improved. We recommend that additional effort and focus be
brought to bear on these aspects of the national system of
innovation and the SBIR program, with a goal of significantly
improving the efficiency of the entire innovation value chain.
Thank you for allowing Celdara Medical to participate in
this roundtable. We appreciate the opportunity to share our
perspectives with the committee, and I am glad to answer any
questions you may have.
[The prepared statement of Dr. Reder follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you.
Dr. Ferneau.
STATEMENT OF PHILIP FERNEAU, BOREALIS VENTURES, HANOVER, NH
Mr. Ferneau. Unfortunately, I am not a doctor.
Senator Shaheen. Mister.
Mr. Ferneau. Senator Ayotte, Senator Shaheen, I appreciate
the opportunity to be here to share in this discussion and
highlight these important issues that you have tabled for
today.
I echo many of the comments that have been made about the
SBIR program, but I want to highlight another aspect of access
to capital that is important to many of our emerging companies.
By way of background, I am a managing director of Borealis
Ventures, a venture capital firm based in New Hampshire that I
co-founded in 2001. Working from offices in Hanover and
Portsmouth, New Hampshire, my two partners and I have invested
in over 30 emerging companies over the past decade, and half of
those have been based in New Hampshire, covering sectors like
software, life sciences, mobile, and digital media industries.
My particular investment focus has been commercializing
technologies out of Dartmouth and other research institutions,
particularly in the life sciences.
Besides my work at Borealis as an investor, I am an adjunct
professor at Dartmouth's Tuck School of Business, where I have
taught venture capital courses and entrepreneurship topics
since 1999. I also was the co-founder and executive director of
the Center for Private Equity and Entrepreneurship. And I am
also a trustee of Dartmouth's local incubator, the Dartmouth
Regional Technology Center, a non-profit business incubator in
Lebanon.
While there are a number of ways in which the Federal
government has successfully encouraged small business
innovation, and should continue to do so, I wish to focus just
now on one of these: increasing access to early stage capital.
My partners and I established Borealis Ventures because we
believed that New Hampshire's entrepreneurial potential was
being held back by its dependence on out-of-state investors. To
put that into perspective, at the time before we started, less
than one percent of all venture capital invested in New
Hampshire came from in-state sources.
Over the past decade, we have been the most, or one of the
most, active venture investors in the State, and we have
demonstrated that investing in New Hampshire's entrepreneurs
can produce attractive financial returns. But even with this
successful track record, it remains a challenge to convince
investors from outside of the State to allocate capital to a
New Hampshire-based firm.
So, New Hampshire's innovative emerging businesses are
still lacking adequate access to local sources of early-stage
capital. That one percent figure that I quoted earlier of--
coming from New Hampshire-based sources of capital--still
persists, even with all that we try to do at Borealis.
Fortunately, one initiative that I want to highlight, the
State Small Business Credit Initiative, which is part of the
Small Business Jobs Act of 2010, is helping to address the
situation. Senator Shaheen, we thank you for your efforts on
that initiative.
The SSBCI provided Federal funding to strengthen State
programs for small business financing. While the SSBCI
emphasizes lending programs, the State of New Hampshire worked
with the Treasury Department to use SSBCI funds to promote
venture investment in the State. This innovation was
administered by the New Hampshire Business Finance Authority,
and they really took a leadership role, along with the State
legislature, to make that possible.
Borealis Ventures partnered with the BFA under this program
to establish the Borealis Granite Fund, which is the first and
only venture capital fund that has been solely committed to
building New Hampshire's emerging technology companies. Since
we launched late last year, around Thanksgiving, we have
already invested in five entrepreneurial companies. Actually,
we have invested in seven companies, but two of these
investments have not been announced yet by the companies
themselves. Two of our portfolio companies are participating in
today's roundtable: SustainX and DYN. Our other investments
include two life science start-ups (one focusing on molecular
diagnostics and the other, a bio processing company) which we
have been involved in helping to get launched, as well as an
early-stage cloud-based software firm.
We expect that we will continue to invest at this active
pace, thanks to the Granite Fund's support. We have a great
pipeline of promising opportunities going forward, and overall
we expect that the Granite Fund will be able to invest in at
least 20 New Hampshire-based technology companies in the years
ahead.
We think these companies will have a meaningful impact on
the State's economy, through not just the skilled jobs that
they will create, but also the innovations they will bring to
market and the downstream ``cluster effect'' that we can create
in the State as well. While we invest locally, these are
companies that have a global impact, and we have seen that
broader impact consistently.
I hope that the Granite Fund's example will encourage
addition Federal initiatives to increase access to early stage
capital, particularly outside of the traditional venture
capital markets. New Hampshire historically--and we can talk
about the statistics later--is somewhere between 25th to 35th
out of 50 States in terms of venture investment, but we still
have the smallest share of in-state capital. And I think we can
all appreciate that things are different when you have a local
partner than when you have a distant partner.
In the interest of time, I only will highlight three other
things that are important to small business innovation. One is,
as we have heard, the importance of SBIR/STTR programs. Many of
the companies in which we have invested have taken advantage of
these programs. At the same time, I think those companies all
would find that there are opportunities to make the program
more effective, and particularly more accessible for the
earliest stage companies.
A second point to highlight is infrastructure investment
for entrepreneurial ecosystems. The Commerce Department's EDA
was instrumental in helping us get the Dartmouth Regional
Technology Center established. And, again, Senator Shaheen, we
appreciate the effort that you and your staff put into getting
that off the ground. The DRTC has been very important in
building an ecosystem around the center--biotech companies in
particular for the Upper Valley.
And third I would just highlight that immigration reform is
an example where we do not need to spend more money. We just
need to adjust Federal programs to allow human capital to rise
to the entrepreneurial potential that we have. Also, the JOBS
Act has been important in a number of ways downstream for
making IPOs more accessible to growing companies, and also
opening up the universe of people who can invest to provide
additional access to capital for emerging companies.
In closing, I want to thank the committee. I want to thank
Senator Shaheen and Senator Ayotte and your staffs for making
this roundtable possible. This is a really valuable opportunity
to highlight the important role the Federal government does
have in advancing our Nation's innovation economy and our
entrepreneurial ecosystems. Thank you.
[The prepared statement of Mr. Ferneau follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you.
Mr. Chynoweth.
STATEMENT OF GRAHAM CHYNOWETH, CHIEF OPERATION OFFICER, DYN,
INC., MANCHESTER, NH
Mr. Chynoweth. Good Afternoon. Thank you very much for
having me, Senators. My name is Gray Chynoweth, and I am the
Chief Operating Officer at Dyn, which is an internet
infrastructure technology company. Through traffic management,
message management, and performance assurance, Dyn is
connecting people through the Internet and ensuring that
information gets where it needs to go faster and more reliably
than ever before. The crossroads of consumer behavior and
enterprise performance is where Dyn delivers.
We started in Worcester and came back here because a number
of the leadership of the company were based in New Hampshire.
So with that preface, I would just get to kind of the things
that we see sitting as a company that has never received
Federal funding and participates in the New Hampshire ecosystem
aggressively because we see it as in our corporate interests to
have a vibrant innovation ecosystem in New Hampshire.
And I think the first thing that I will kind of key in on
is talent. There are three pillars--talent, capital, and
community--that we believe engage and enliven an
entrepreneurial ecosystem and an innovation ecosystem.
So the first one is higher education. And if I had a
recommendation or an encouragement, it would be to enact things
that encourage universities and community colleges to have
institutional flexibility to meet the needs of business. You
know, much is--you know, long has been the discussion about the
kind of ivory tower. And I think as you see innovation--the
pace of innovation increasing, what that means is that
educational institutions become more and more and more out of
touch with, especially information technology, with what the
needs are of businesses.
So encouraging them to think about how do we get classes--
you know, how do we get degrees in classes that are suited to
today's business out more quickly? How do we ensure that we
have flexibility as an institution to allow that to happen?
The second thing on talent would be immigration reform. You
know, we do not view ourselves as competing with Boston. We are
competing with Bangalore. We are competing with Brussels. So it
will in the long run serve the United States' economy and all
of our citizens if we allow the most talented people to come
here. We have had our own challenges and have had to wind the
path through immigration to get some of the most talented
people we have, and those people have brought in lots of money
to the company and have created lots of jobs. So they are
creating jobs for us in America.
Capital. I could not emphasize more Phil's comments. You
know, that really--the Granite Fund is incredibly important.
Getting that release stage capital happening in New Hampshire
is really important and has really not been a very successful
place for early stage investing. And that is a big part of
making that happen.
On community, I guess kind of two points. One, I think the
exact type of thing that you did with the DTRC, it would be
worthwhile if we could figure out how to do it in other parts
of the State, because when you have people that are
specifically dedicated to fomenting that type of
entrepreneurial activity, it breeds lots of excitement and
activity, and you need to kind of bring people the innovation
life cycle.
Most people are not risk takers initially. You have to
encourage people to have the ideas. You have got to bring them
through different stages of entrepreneurship to that moment
when they feel comfortable to quit their job, and go off and
start something new. That is not something that just--most
people just wake up and do. Some people do, but a lot of people
need to be brought through the process to a place where they
can feel confident in doing that.
The last thing that I would say in addition to kind of
community is, you know, welcoming this. This is the perfect
example of focusing--of using your platform to focus the
community on entrepreneurship.
And the last thing would be cost. I think, you know, there
is a lot of discussion about taxes in Washington and taxes in
New Hampshire. And I think our position is that assuming that
we can get the same services from government, we would always
like to pay less for them. But if it is the case that, you
know, you take the tax dollars and you put them to good use, I
think that most businesses would agree that that is an
important part of enabling us to grow. So whether that is, you
know, infrastructure like rail to Boston, or whether it is
ensuring that we have internet all over the State, those type
of basic level services that are enabled by government
investment certainly make it easier for us to succeed as a
business.
So, thank you very much for your time, and I look forward
to the discussion.
[The prepared statement of Mr. Chynoweth follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you very much. And if I could just
ask everybody to get close to their mics so that people
throughout the room can hear.
STATEMENT OF EDSEL M. BROWN, JR., ESQUIRE, ASSISTANT
ADMINISTRATOR, OFFICE OF TECHNOLOGY, U.S. SMALL BUSINESS
ADMINISTRATION, WASHINGTON, DC
Mr. Brown. Hi. My name is Edsel Brown and I am the
Assistant Administrator in the Office of Technology at the
Small Business Administration. I want to take this opportunity
to thank Senators Shaheen and Ayotte and other distinguished
members of the committee who are not here for the invitation to
participate today.
I have submitted a statement, but I am just going to shoot
from the cuff and give an overview.
I have been involved in the SBIR program for approximately
10 years now, and I have gone from a period where I struggled
to understand what the acronym meant to 10 years later. And I
will suffice that to let it speak for itself.
I went through the period before the reauthorization, some
of the major issues that came up during the reauthorization,
like venture capital, going directly to phase two, and other
issues, which we are all familiar with here, access to capital,
et cetera. Needless to say, we have grown by leaps and bounds
over the last 10 years and, of course, even further than that
over the course of both programs, SBIR in 1982 and STTR in
1992.
From where I sit, the question is, where do we go from
here? We had the reauthorization in place, and on behalf of the
administrator of SBA, Karen Mills, I would like to thank you
all for your leadership in getting that through. But we are in
the process of implementing that. We have been working very
closely with small business, but even more closely with program
managers, such as Manny across the aisle here, to fine tune the
reauthorization legislation and try to get out of it what you
all have set forth when you established the reauthorization.
The National Academy of Sciences found that the program is
successful with their last evaluation, and, of course, they are
in the middle of starting another evaluation as we speak. But
again, where do we go from here, and how do we fine tune what
we have now?
My major emphasis this morning or this afternoon is
listening to the concerns of the small businesses that are here
where the rubber meets the road. I mean, I could almost quote
you line and verse of the reauthorization, the SOP, the policy
directive. But again, it is good to hear what issues that the
small businesses have out there in the field when they are
trying to apply for SBIR, or they are trying to find out where
the opportunities are.
Let me point out, before I forget, that I am very proud
that we have one award winner here. We have awards program with
SBIR for those of you who may not be familiar. We have the
Tibbetts Awards, and also the SBIR Hall of Fame. Creare, if I
have not mispronounced the name, was a 2002 Tibbetts Award
winner, and I am sure there are two other company names that
will be familiar with you, Symantec and QualComm. They are two
members of our Hall of Fame. So the successes of our programs
speak for themselves, but again, what can we do here, even in
this brief time today, to move the envelope forward?
In closing, the one area that I am looking at that I have a
lot of emphasis on in terms of interaction with small
businesses is phase three, and what happens with a firm when
they come in and they believe that an agency is giving the
award to a firm other than a firm that developed the
technology. And I think whatever we can do to fine tune that
section of the reauthorization, and I do not know what can be
done at this point in time. But again, that is a major issue,
phase three appeals.
Thank you.
[The prepared statement of Mr. Brown follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you.
Mr. Bundas.
STATEMENT OF JASON BUNDAS, MANAGER, INFRARED SYSTEMS, QMAGIQ,
LLC, NASHUA, NJ
Mr. Bundas. Thank you, Senator Shaheen and Ayotte, members
of the committee, for inviting me here today to speak and to
join in this discussion.
QmagiQ is a small business for sure. We have six founding
members plus two employees. We are based in Nashua, New
Hampshire. And actually Labor Day weekend will mark our 10-year
anniversary. Our core expertise is in designing and
manufacturing focal plane arrays for infrared applications,
mainly thermal imaging.
We have grown the company over the years from starting in
2003 to current annual revenues that are a little over $4
million. Roughly half of that is from commercial sales,
primarily focal plane arrays to camera manufacturers who then
build systems, typically for military or other paramilitary
applications, some industrial use as well. The other half of
the revenue today is primarily from SBIR funding that we use to
continue to advance our technology to stay at the forefront of
infrared technology in general.
2013 specifically has been a landmark year and an
interesting one for us. As of February this year, we have our
first devices in space aboard the LANDSAT 8 satellite. We have
also had successful field tests of prototype camera systems by
the Army for aiding pilots to fly helicopters in degraded
visual environments, basically when they are flying over dry,
dusty soil and coming into land.
One other note is that we have advanced our new detector
technology to a point where I would say we have officially
commercialized it, marked by issuing firm fixed price quotes
and receiving purchase orders, which we are filling today. And
that is really what we view the SBIR program as a means to do.
Additionally, it has helped us temper fluctuations in
commercial sales, which has happened over the years.
Since about 2005, which is when we submitted our first
phase one proposal, we have continued to submit for more phase
ones. As we perform well on phase ones, and subsequently phase
twos, we have built relationships with various agencies that
enjoy the results that they get from a relatively small amount
of funding to a small business in a high tech arena that is
generally dominated by the large defense houses.
So we provide an opportunity for various government
agencies to play in the sandbox, if you will, for a modest
amount of money to try out a new idea with a phase one project.
As a small business, we can actually make hardware and
sometimes deliver hardware on a phase one proposal, and then
move the project into a phase two where we further the
technology development and/or deliver full systems. So the
value that the government can get through SBIRs working with
small business, especially on cutting edge technology, is
phenomenal, in my opinion.
Another area that we make use of government support is in
the facilities that we use. Fabricating and developing these
devices, especially doing the R&D, requires access to tools
that are incredibly expensive to both purchase and to maintain.
They need to be housed in facilities that are very high class
cleanrooms, which are also expensive to construct and maintain.
We do have our own cleanroom facility, a relatively small one,
down in Nashua for doing unique aspects of our fabrication
process.
The National Science Foundation has started the National
Nanotechnology Infrastructure Network, which has spread to a
little over a dozen universities nationwide. These technology
centers of excellence include fabrication centers and
laboratories where taxpayer money has been used to set up
state-of-the-art facilities. This is great for the
universities, but along with this funding comes the charter
that it is the university's job to go out into industry and
find people who will pay for access to come use these
facilities.
That works out perfectly for us and for other small
businesses, where the prospect of capitalizing the equipment to
do this is just cost prohibitive. I mean, you are talking tens
of millions of dollars, and there is just not a business case,
at least on our level, to support doing that ourselves.
So with these facilities that are out there, our own
engineers can go in as needed and use the equipment to do the
development in order to stay at the forefront of our
technology. So specifically, there is one at Harvard that we
use and another one in Santa Barbara.
Access to those facilities has been absolutely instrumental
in really getting QmagiQ off the ground and maintaining it at
the forefront of the technology class that we operate in today.
Additionally, the funding provided by SBIRs has kept the
development wheels turning, so that has also kept us right at
the forefront of this infrared technology space where we are
playing in the same field as NASA's jet propulsion laboratory,
Raytheon, other similar groups where these are all the large
houses that are generally expensive to do development with. So,
being a small business in this area is unique, and the agencies
that we work with on our SBIRs, I think, appreciate that and
try to leverage our talent as much as possible to get the most
value that they can out of their SBIR dollars.
So in a nutshell, that is QmagiQ's story. I am happy to be
here today. Thank you again. I look forward to the discussion.
[The prepared statement of Mr. Bundas follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you.
Dr. Kline-Schoder.
STATEMENT OF BOB KLINE-SCHODER, Ph.D., CREARE, INC., HANOVER,
NH
Dr. Kline-Schoder. Good afternoon Senator Shaheen and
Senator Ayotte. Thank you tremendously for asking me to be
here. It is a real honor to partake in this discussion of New
Hampshire's small businesses and the effect that the Small
Business Innovation program, as well as other programs, have
had on our business.
Senator Shaheen. Thank you. Can I just get you to pull your
mic closer?
Dr. Kline-Schoder. Okay, thanks. I remembered to turn it on
at least.
[Laughter.]
Senator Shaheen. Yes, good. All these soft-spoken
panelists.
[Laughter.]
Dr. Kline-Schoder. As you may know, Creare has had a long
relationship with the SBIR program, actually starting before it
even began. Our President at the time in 1982 actually worked
with Senator Rudman on the original legislation that helped
establish the SBIR program. Since then, the program has played
a key role in our business and in the local economy up the
Hanover area. SBIR has helped Creare to establish successful
spinoff companies, develop new products for government missions
of national importance, and license SBIR-funded technologies to
existing product firms so that they could go commercialize and
enhance their products that they have already in the
marketplace.
I appreciate this opportunity to discuss the functioning of
the current program, how it is working since reauthorization,
as well as to provide a few comments on the future of the
program.
Since reauthorization, the program continues to behave and
act much as it has since its beginning. It is a very efficient
contracting mechanism for small business to help support the
U.S. government in Federal contracting in research and
development, as well as in product development.
The increased award sizes, coupled with the increase in the
set-aside in the reauthorization has truly strengthened the
program by expanding the scope of work that can be performed
for a given award, while maintaining the number and breadth of
awards and technologies that can be supported. In addition, the
flexibility provided in the reauthorization to allow multiple
phase two projects to result from a single phase I across
agencies so that you are not stuck if you have a phase one in
the Navy. Now the Air Force can actually pick up the phase two
if they are interested in the technology as well. And we have
seen that happen in the last number of years.
In our opinion, the areas for improvement in the program
include, and you have heard some of these before, so I am sorry
if I am repeating myself. But the first one is actually, even
though it has been two years, 2017 is coming up pretty fast, as
we all know, and reauthorization--doing that before it expires
would be really very helpful for the small business community
for the reasons that people around this table have already
mentioned, the consistency and the reassurance to the small
businesses, as well as to the clients in the government.
The other thing that we find is very important and we think
is a real key to the program is that it is a competitive,
completely open, non-political program where you submit--many
companies are allowed to submit their great ideas. There are
folks who vet those ideas, try to determine which are the best
ones and the most likely to succeed. And then those programs
are supported. And that competitive nature and very open nature
is very important to the functioning of the program, and, I
think, one of the reasons why it has been so successful over
the long term.
And finally, continuing to increase the set-aside,
consistent with inflationary pressures, as well as the award
sizes, so that--I think it had been 10 or 15 years before that
step had been taken, and continuing to do that as is currently
in the current legislation and the reauthorization, continuing
that forward would be very helpful.
On behalf of our employees, I would like to thank you for
your efforts to reauthorize the SBIR program in the past and
your continuing work to preserve and enhance the participation
of small businesses in Federal research and development. As a
result of the program, through every economic downturn of the
past 30 years, Creare has remained strong and continued to
develop technologies and create jobs, due in large part to this
program.
Thank you for allowing me to participate, and I look
forward to the discussion.
[The prepared statement of Dr. Kline-Schoder follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you. Thank you all very much for
your statements. Now the fun begins because we will begin--I
will throw out a question, and then I will ask Senator Ayotte
to do that, and hopefully that will generate some conversation.
I want to go back to an issue that Dr. Torbick brought up
when he talked about the importance of more uniformity across
agencies in terms of how the application process works, and ask
Dr. Oliver and Mr. Brown if this is something that you have
heard before, I assume, from businesses, and whether there has
been an effort to address that concern, and what might be the
impediments to doing that, and whether you think there is an
opportunity to provide for more uniformity. And maybe I will
ask you also to talk about the flexibility piece, too, because
several people raised that in their comments.
So Dr. Oliver, do you want to go to first?
Dr. Oliver. Yes. With regard to the consistency, I think
first I would divide the agencies into those who do contracting
versus those who do grants, because we handle those very
differently. And so, among the granting agencies, we do use the
central application process of grants.gov. And so, for example,
the Department of Energy, which issues grants, the National
Institutes of Health, the Department of Agriculture, and the
part of the Department of Education that uses grants, all apply
through grants.gov. We use the same set of forms, and those are
actually controlled quite a bit to keep them from changing too
much year to year and to provide some simplification.
When you move on the contracting side, things are very
different. And I do not have as much exposure to that, so I
cannot really comment. But for those mission agencies who do
contracting, those rules are different than the financial
assistance for grants. And I cannot really address, not knowing
the contracting side, what we can do to kind of merge those,
but I believe there is quite a bit of statutory guidance in
place which limits how much flexibility we have there.
Senator Shaheen. Mr. Brown, do you want to add?
Mr. Brown. I think Manny hit the ball right on the head.
One thing I will point out, though, and I was speaking with Dr.
Torbick earlier before our session on this exact topic. Believe
it or not, this is a priority for us, and we have been working
with the other agencies to try to figure something out. But I
would be less than honest if I said that we have really come up
with a formal answer to the problem.
But before this reauthorization came out, we had something
called SBIR 2.0, and we divided several topical areas that we
could make inroads on before the reauthorization even came
about. And this was one of those topical areas, how can we
streamline and expedite the process that it will be less
burdensome on small business?
Now, you know, since the reauthorization, we have been busy
trying to implement the reauthorization, but we are still
trying to make inroads on this issue. But we are not there yet,
to be perfectly honest.
Senator Shaheen. So any businesses who are recipients who
want to weigh in on ways in which you think they could provide
some more flexibility? Yes, Dr. Reder?
Dr. Reder. Yes. So the balance between uniformity across
agencies and flexibility within agencies is a tough one. From
our perspective, uniformity in administrative aspects--what the
forms look like, what are the necessary components, et cetera--
should not be an impediment to the any of the agencies.
However, the required flexibility is really key. This gets
back to my point in the brief. Every sector is different. It
costs different amounts of money to do different types of
science. It takes different amounts of time. And so, putting a
one-size-fits-all rule over top of all the agencies is
nonsensical.
The realities of each sector have to be reflected, and the
needs of each agency have to be reflected in what the actual
policies are. That says nothing about what the administrative
process needs to look like. But NIH is a great example--the
study that the NRC did on this said over and over again that
flexibility, flexibility, flexibility is what is making this
program so successful.
The agency personnel and the program officers themselves
are really smart people. They are constantly looking at their
portfolios and thinking, ``Well, what can we do to improve this
to achieve our mission?'' The NIH's mission, of course, is to
increase knowledge and improve human health. They have been
able to respond to those challenges over the years by
significantly altering the way NIH administers their SBIR
program versus the way many of the other agencies do. That is
to the benefit of the program and to the American people.
Senator Shaheen. Great. We can actually make the NRC study
part of the record, which would be helpful.
[The study referenced, ``An Assessment of the SBIR
Program,'' can be found at http://www.nap.edu/
openbook.php?record_id=11989.]
Senator Shaheen. Mr. Bundas, and then I am going to turn it
over to Senator Ayotte.
Mr. Bundas. Yeah. We have specific difficulty in this area
being a small company that primarily deals with DoD agencies.
So you can imagine the paperwork above and beyond just simple
government accounting that is involved there. Fortunately I am
not directly involved with the accounting side of things, but I
hear about it nonetheless.
Every time that we seek an SBIR--sometimes phase ones are
pretty straightforward, but the goal of a phase one is to get
to a phase two. And when you start working with a new agency
that you have not worked with before, you almost have to start
all over again and start working with whomever the accountants
are on the other side, and explain how we as a small business
run our accounting system, and how that is different from the
defense contractors that they are used to.
Eventually, we can come to some sort of system that works,
that is not so cumbersome on the small business side that it
keeps us from being agile and efficient, but it gets all of the
information that the agencies need on their end. But if there
was a central--you know, once you have made it into the SBIR
realm in general, even if you have not worked with a certain
agency before, if they can go through the SBA office and know,
okay, this is how QmagiQ does their accounting, this is an
approved method, and just streamline that whole process, it
would save a lot of headache on our end in both time and
effort.
I do not know for sure if we ever declined an SBIR award
just because the accounting was too cumbersome for us, but we
have had at least one instance where the recommendation was to
hire a full-time person just to do the accounting. I mean, we
are eight people. We are all technical, right? We have
different hats that we wear to cover our own administrative
parameters, and to do something like that is just not a viable
option for us.
So, yeah, this is definitely an area that I would love to
see some improvement. It would help us a lot. Thank you.
Senator Shaheen. Thank you.
Senator Ayotte.
Senator Ayotte. As a follow-up to that prior discussion, I
noticed in your written testimony, Dr. Kline-Schoder, that you
had said, and obviously Creare has a long history with the SBIR
program, that we need to streamline contracting, which, while
still faster and more efficient than most government
procurements, is beginning to slow down due to inefficiencies
that have crept into the process.
So, if you can help us with your thoughts on what
inefficiencies are in the process so that we--I think it
dovetails to the discussion we just had. I wanted to get your
thoughts on that to see if we can really try to cut through
this for all of you.
Dr. Kline-Schoder. Sure, Senator Ayotte. Thanks for
bringing that up.
Yes, in the last couple of years, and part of this may have
been due to some of the extraneous things happening in
Washington with budgets not getting reauthorized and so on. But
we have seen in this year in particular a lengthening of the
time between when we are told that we have received an award
and when the contract is actually signed.
And, you know, every instance probably has a slightly
different story, but they range from things like having to
have, similar to what my colleague had to say about audited
rates taken care of. So you might go to one agency and the DoD
does a good job of auditing our rates for the DoD. But then if
you get an award at NIH, they do not take the DoD's audits, and
so, they have to do a separate audit for themselves. And even
sometimes within the DoD they do not accept the DCMA, the
Defense Contracting Management Agency's, audited rates, and
they will do their own local review of our rates.
And so, they start on that path. And then what has happened
in the past during this past year is three months go by, and
then the contracting officer changes. And so, then they have to
go back and start from scratch again. So some of that
uniformity that we have been talking about here and that we
have heard about here actually extends into the contracting
realm, and causes difficulty there and causes things to slow
down.
Senator Shaheen. Can I just interrupt for a minute and ask
you about the auditing piece? So when one agency within DoD
does not like the audit that has been done by another agency,
do they give you an explanation for what they did not like
about the audit? So what do they say is missing that they would
like to see?
Dr. Kline-Schoder. Right. Well, so the interesting thing
is, audits actually are not--do not allow you to get approved
rates. They will accept your rates. And so, it sounds like
semantics, but in the contracting world, apparently if the DCMA
does not approve your rates and they are not willing to approve
your rates, they are willing to accept your rates, the
contracting--the local buyers need what they would consider
approved rates. And so, they will send a letter to DCMA saying
do you have approve--does Creare have approved rates, for
instance? And they will say, well, we have reviewed their
rates, and we accept them.
In some instances, that is not good enough for the local
group because, you know, and I do not know why certain DoD
groups might accept them and others will not. I can speculate
that there maybe are some people at certain places that just
have rules that they have instituted that they require
something. And if it is not exactly what they require, then
they need to go back and do that analysis themselves.
Senator Shaheen. Thanks.
Senator Ayotte. I also wanted to follow up on--I know that
several of you mentioned immigration reform, which is another
whole topic. But it gets to the topic of workforce and making
sure that, particularly in the STEM fields, that we have the
best and the brightest to be able to start these companies,
grow them, extend them.
So, I wanted to get--I guess I would start with you,
Philip, and Gray as well, just to get your thoughts on how the
immigration system is working, how important is it that we
expand, for example, the H-1B visa quotas, which I know now are
around 66,000, and the bill that Senator Shaheen and I both
supported would dramatically expand those caps.
But how is the system working now, and how would you like
it to work?
Senator Ayotte. And why is this important for our economy?
I think sometimes there is a discussion as to, you know, why--
how does this work in terms of us growing our economy?
Mr. Ferneau. Thank you, Senator. With regard to immigration
reforms, I have had the opportunity to work with Senator
Shaheen's staff on this topic previously, and appreciate the
support from both of you for some of the initiatives that were
included within the Senate legislation recently.
I think there are two pieces to it. One is increasing the
number of H-1B visas for highly skilled STEM workers, you know,
students and other bright people who are coming out of our
universities. They come to the U.S. from around the world, the
best and the brightest. They get a great education. And then,
they have a challenge actually staying in the U.S. to work at
the DYNS of the world and other emerging companies.
I have seen that challenge with some of our companies. I
have also seen that situation through my role at Dartmouth on
the faculty where in the engineering school and the business
school you have highly skilled students who find it difficult
to remain in the U.S. and take the positions they would like
to.
The other piece of the solution is something like the
Invest Visa, where you can actually enable a talented
entrepreneur from elsewhere who wants to come to the U.S. and
create jobs, create a company, high-growth business. Finding a
means to allow that person to come and create an
entrepreneurial company in our economy is important.
That initiative is about creating jobs. That is not
stealing jobs. By definition, that should be a good thing for
us, and it is unfortunate that these sorts of important real
value-creating initiatives within our immigration policy have
been held captive to other immigration-related issues.
Mr. Chynoweth. Yeah, thank you. So, I would, I guess, just
a kind of color story that I could give on a person we hired,
H-1B, out of college, with us for 10 months, discovered another
way for us to kind of deal with one of the technology pieces we
were doing, and two months later started producing about
$400,000 in revenue for us.
So, I think you can see--now, you could say someone else
could have done that. You could say that it could have come
from anywhere. But that is a very tangible example of how we
are able to grow, you know, about $5 million a year in revenue
off of one person's idea. So, that allowed us to hire a lot of
other people who are not--you know, who are, native, you know,
Americans.
And I think it is just an example of how much leverage we
can get on technology with talent, you know. And if we are not
bringing those people into this country and allowing them to
stay here and help grow our companies, then they are going to
go elsewhere and grow other companies. And that is what we
certainly view this as.
And even more interestingly, to the extent that you think
that hiring someone who is born in another country here
displaces an American job, with the increased availability of
telecommunications, I do not have to have that person here in
order for them to work for my company.
So, you know, we got one. He came and joined the company,
and we were able to navigate the H-1B process. But let us say
that you wanted to reserve that for a person that was born in
the United States. What we might have very easily done is, you
know, what a lot of companies do is they simply employ the
person, and he would have gone back to India where he was from,
and we would have employed him there. So it is not like you
would have saved the job for an American person, you know.
And so, you know, what we are losing out on is the economic
productivity that those people bring, you know. He is buying a
house. He is getting married. He is, you know, having kids. All
these things are driving certainly our company forward, and we
think driving the American economy forward.
So, you know, to view--it is almost anachronistic to think
about the talent environment as having a lot of lines. And, you
know, they could go elsewhere and start companies, and we want
to keep them here.
The other thing that I would say that is kind of connected
to this is, it is not just--on the STEM fields, it is not just
that we have--that there is a shortage like in New Hampshire or
in California. It is a global shortage of this talent. There is
no possible way that even if we had all the workers and
everyone re-trained in America to do these--to work in these
fields that we would actually be able to satiate the
opportunities that we have. So we need to kind of keep pace
with innovation, and as we--it is kind of a both/and solution,
you know.
We need to be re-training folks who are--you know, get into
the middle skills and are, you know, changing careers. But in
order to really capture that fast-moving dynamic, economic
opportunity, we have got to be able to get the people trained
right now today. And those are the people that are graduating,
and those are the people that are here on H-1Bs. So hopefully
that provides more context.
Senator Shaheen. Dr. Gittell.
Dr. Gittell. The comments really highlight the need to have
a two-pronged strategy. And I think the Federal Government has
been supportive through the H-1B programs that it funds, which
then get recycled into workforce training here in the New
Hampshire community college system.
And New Hampshire has benefitted from the Trade Adjustment
Assistance Community College and Career Training (TAACCCT) Act.
Specifically, we have taken advantage of the TAACCCT in the
community colleges, including a nearly $20 million fund to
upgrade our advanced manufacturing training across the State
where we are training the next generation of manufacturing
workers across the State of New Hampshire in machining and
precision manufacturing, which is critical.
We have to address the current workplace needs, but also we
spend a lot of attention on our primary and secondary schools,
to build that pipeline for the next generation of skilled
workers and entrepreneurs in the State of New Hampshire.
I do not think you can do one without the other. Federal
programs that link some immigration policy to funding for
training and re-training in STEM education in New Hampshire
would be very beneficial.
Senator Shaheen. Well, I am sure you are all probably aware
that the immigration reform bill that passed the Senate
included funding for STEM programs, which was a great benefit
that I think if we could pass the bill--I would encourage all
of you to talk to the House members, which is where the bill is
held up. But that could have some real benefits for us in the
future, not only in New Hampshire, but across the country.
Senator Ayotte. Which I will also say, by the way, with the
bill, because of the economic growth that comes from the bill,
a huge deficit savings over not only the 10-year window, but
the 20-year window. So on--if you look at it as an economic in
terms of driving the fiscal challenges we face in the country
as well, that is a very important component to it.
And the STEM programs are funded, as Senator Shaheen
mentioned, through the parts of the fees for the new extension
of the H-1B. So, it is a great example of how another area
where we could, if we can get this done, very much be an
infusion not only of talent, but help us create more jobs here,
all of you, give you more opportunities to create jobs.
Senator Shaheen. One of the questions that we got from
somebody in the audience--we are not sure who--relates to an
issue that a number of you raised, and that is access to
capital. And I know, Mr. Ferneau, you talked about that in
terms of how much more we need in New Hampshire.
But one of the major issues when we reauthorized the SBIR
program had to do with the role of venture capital firms in the
program. And I just wondered, we may not be far enough along to
have a sense of whether the changes that were made have been
helpful and are helping to address that concern. And I did not
know if any of you have any views on how the program was
changed to accommodate venture, and whether you think that has
been a good thing or not. Anybody, any thoughts about that?
Mr. Ferneau. I cannot say that we have encountered any
examples yet of the expansion or the carve-out with regard to
venture capital backed companies specifically. It has been too
soon for that.
What I can tell you is that when I put the question of SBIR
effectiveness out in advance of appearing today at the
roundtable to a whole range of companies, some of which we have
invested in, as well as technology transfer officers with whom
I have worked, the highlight issue for all of them was that at
the earliest stage, companies are still being frustrated--they
are finding the SBIR program increasingly a less useful source
of funding for their innovative research.
Senator Shaheen. Say that again. I am not sure I----
Mr. Ferneau. The success rate of their SBIR applications
has become sufficiently low, 15 percent for Phase I for many of
these, that applicants no longer view the program as a viable
path to think about how to get something started.
It is one thing if you are a more established company and
you have been successful--you are already in the market with
some product--to use SBIR funding to introduce new products,
and extensions of a product or a new technology. You can build
that into your budgeting in a predictable way now that the SBIR
program has reauthorization. If you are a first-time principal
investigator with a new idea to be the basis for your company,
the yield on your application effort now is so low that you
cannot think about using that as the predicate for getting your
business funded or even started.
And then, the timetable is too slow, even if you do succeed
with your application--even with the fast track where you put
Phase I and Phase II together, it is still such a long span of
time and there is still uncertainty, that you cannot really
think about that as the way that you will get off the ground.
I think what is happening is that the SBIR program
initially had multiple objectives. One was to advance
innovative research. The other one was to help small
businesses. I think there is a subset of small businesses for
whom the SBIR program is not reaching effectively. I know that
we have had many life science companies that historically would
have started with SBIR programs to get out the lab. Now, they
say we just cannot depend on that, and so we are wholly
dependent on other sources of capital, which exacerbates the
access to capital issue that I flagged earlier.
What I will say is that to the extent the SBIR program ever
restricts the number of SBIR programs or dollars that are
available to any potential companies by looking at their
ownership or source of funding (where it is venture-backed--
majority venture-backed funded) you are further reducing the
value of the program to some of our highest growth or highest
opportunity companies where the private sector has already
indicated these are valuable high potential businesses.
And in some companies, the development requirements for
their technology is so high, in the life sciences in
particular, it is not uncommon that over time, you will find
that outside investors have invested more than half of the
company's equity. To arbitrarily restrict those companies from
access to the program seems self-defeating to me.
Senator Shaheen. Thank you.
Dr. Reder.
Dr. Reder. I will take a slightly different view and tell
you about a few tactics that I have actually seen used in the
market and the life sciences industry, one of which is some
investment firms will just hire a full-time grant writer. If
you look at the return on that investment, it can actually be
quite good.
What is wrong with that? Well, if the idea and the concept
is not mission critical enough or important enough to the
company to go out and do this themselves, but this is a bit of
icing that their investor is providing, there is a real
question of impact. Just how much impact are those dollars
going to have, or is it just some padding that is going to help
this particular portfolio?
The other very disturbing trend that I have seen, again, in
the life sciences industry, is what are referred to as walking
dead companies. These are companies, some of which have had
over $100 million in venture money put into them. They did not
make it, and now they are down to a handful of staff just
trying to keep the lights on, while the majority owner
investors are trying to find someone to buy this from them so
they can recoup some of their investment.
At that point, your operations are really not functioning,
and you have a few people around with an enormous number of
patents and other assets that can write grants. And so, then
the question is, if you have put $100 million into this
particular firm, what is the value of adding a $150,000 Phase I
SBIR? What kind of impact are you going to get for that? Well,
you are going to keep the lights on for another six months
while the investors try to recoup their capital. The impact for
my tax dollars is going to be zero.
And so, there needs to be some way so that when you have a
51 percent owned company that is really on that up curve and is
really doing well, and expanding and building their first pilot
plans, that they are still eligible. But you have got to avoid
these types of games that investors will play, because their
goal as an investor is to provide a maximum return for their
shareholders. They do not have any sort of altruistic goals
associated.
So, the ultimate question I think is how to maintain the
impact of the program without simply diluting the field with
very talented, very smart, but ultimately non-productive
applicants.
Senator Shaheen. Mr. Rauwerdink.
Mr. Rauwerdink. And I will continue on the previous two
comments. And I can speak as a company that has been fortunate
enough to secure SBIR funding, and that was, as I stated,
critical in our formation, but also been successful and then
leveraging additional private capital.
And though we have grown substantially and are very
strongly on the up curve, there are two conditions that are
very, very similar to when we first got the SBIR award. We are
still a very strong culture of innovation, and that has not
changed, and that continues. And we are still, despite having
more capital and more access to capital, are still restricted
in our ability to really chase new angles and new innovations
that come about.
And that is where some of the new size rules that have come
about for the SBIR have allowed us to turn a new eye on the
SBIR and not have to look elsewhere to some of the other
programs, but to take new innovations that come about and
pursue them, and have the route to grow bandwidth, grow new
personnel, to grow new expertise, and pursue those angles.
Senator Shaheen. Would you just explain to everybody what
you mean by ``the new size rules?''
Mr. Rauwerdink. Yeah. I am not going to go into detail.
They are on the record. But it has to do with how ownership is
viewed from companies that have received venture capital
funding. We have received it from a number of sources.
And so, one of our--one of the investors, for instance, is
General Electric, a portion of it. Are we considered X hundreds
of thousands of employees, or are we still a 40-employee small
business? So that is where some of the clarity can help and
define where we are positioned, how we are viewed.
Senator Shaheen. Thank you. Can I just ask Mr. Brown, and
this probably does not apply to you, Dr. Oliver, because, as
you said, you are not doing contracts. But what kind of a
screen do you look at to address some of the issues that Dr.
Reder raised? Well, how do you look for whether the company has
had $100 million invested, and now they are--you called it the
walking dead--a walking dead company. That is pretty
descriptive.
How do you screen for that kind of a company that may not
be the best candidate for an SBIR award?
Mr. Brown. Well, what we usually do is if there is a
complex case that has multi tiers of ownership and, you know,
VC ownership, et cetera, what we will do is we will ask them--
we will get as much information as we can. We will have a
conversation, and we will get them to send something written in
terms of their ownership structure.
And we will go back and forth, and we will just break it
down, and dig down, and drill down until we are satisfied that
we understand the nature of the structure. And then we will
give them feedback on it.
Senator Ayotte. I wanted to follow up with that, Mr. Brown,
based on something that Dr. Torbick said, which you talked
about establishing a better connection between the small
businesses and the managers.
So when you talk about sort of more of a paper
correspondence between the two, how do you then know what is
really happening in the company? So as I understood what you
were saying is you want the interactions so that they can see
very much what you are doing and the productivity that you are
bringing to this by your award.
So how much do you actually visit or make that connection,
because I think some of that actual connection piece would
probably bring to light the walking dead. So, I wanted to get
your thoughts on that, Mr. Brown.
Mr. Brown. Well, to be perfectly honest, you know, as I
outlined earlier, that is one of the major benefits that I
personally am getting from this session today. That is why you
see me taking copious notes is it is good to hear what is
happening where the rubber meets the road.
I mean, as you well know, we have the reauthorization
legislation, and, you know, SBA as well as all 11 participating
agencies have a great deal of responsibility in getting the
framework out there, let alone start making inroads on some of
the major provisions, like venture capital participation, of
which NIH is the only agency that has signed on from that
vantage point.
But in terms of drilling down with a company, such as my
colleague here, I mean, that is very rare, unless, as I said,
we get that interaction from them either directly, or
frequently a program manager will contact us. We have this
issue; could you please contact Mr. Torbick, and we will work
it out between us.
Senator Ayotte. Dr. Oliver.
Dr. Oliver. Yes. I just wanted to echo Nathan's comments.
We view that it is very important to have onsite visits between
program managers and the small businesses. One of the
challenges we have had is, as you are aware, the fiscal
pressures on travel budgets. Generally, the agencies' travel
budgets have come down as a result of that.
So, we actually are thankful for reauthorization, the
administrative funds that we are able to use. And we have set a
small amount of those administrative funds just for the site
visits to make sure that that is not sacrificed as we move
forward.
Senator Ayotte. Thank you. You know, one other thought I
had, how much do you leverage--I know the Department of
Resources and Economic Development are here from the State
level. And is there is a connection between the State
government piece, because they are out in the field quite a
bit. For example, in our State, and I am sure in other States.
And is there a leveraging between reaching out to the State
agencies and saying, what do you know about this company, have
you visited it recently, just to also get that input?
Dr. Oliver. I will comment. In terms of the application
process, we currently do not do that level of digging. Again,
the current process is for the companies to certify to their
eligibility, so that it is a self-certification process. That
takes place if they have an award. Given the timelines we are
under today, we rely on that as the initial check in moving
forward with applicants to know if they are eligible or not.
If there is any question about ownership or that would
compromise their eligibility, I think we, like most agencies,
defer to SBA. So we would send the company to SBA to get a
ruling as to their eligibility.
Senator Ayotte. It just occurred to me that there are a lot
of great State resources, too. For example, I know how involved
our DRED is with local business, that they may even be good
avenues just to establish those relationships and connections
in terms of what are good candidates, and encouraging using the
DRED as another way to leverage what the Federal government
does. It was just a thought I had. I was just curious how much
interaction there was.
Dr. Oliver. Yes. So, at least with our agency, we have to
base the review of the application on what was submitted. So
all of the information must come in with the application. We
are not at liberty to go out and get additional information to
make someone's application look stronger or weaker from that
point of view. So we do not have the flexibility right now to
do what you are describing.
I would add that we do work with the small business
development centers throughout the country in terms of
identifying new potential applicants. But that is, I think,
very different from what you are saying.
Senator Ayotte. Yeah. Thanks.
Senator Shaheen. Dr. Kline-Schoder, did you have a comment
on that?
Dr. Kline-Schoder. This was on the previous comment----
Senator Shaheen. Okay.
Dr. Kline-Schoder [continuing]. Related to--I just wanted
to echo what Nathan had said, that our experience is when a
program manager is actively involved, those are the most
successful projects.
Senator Shaheen. Let me ask you, because Dr. Oliver
referred, and I referred in my opening statement, referred to
the fact that we also invited NIH and the Department of Defense
to participate today, and both of them were forced to decline
because of the travel restrictions on their budgets due to
sequestration.
Have any of you gotten concerns as you are looking at the
potential for the program down the road--I assume Mr. Brown and
Dr. Oliver might comment directly. But the businesses who are
represented here, are you hearing concerns that sequestration,
those automatic cuts, are having an impact either now or
concern about the future? I assume, Mr. Bundas, that you were
going to comment on another issue.
Mr. Bundas. I was going to comment on an earlier topic, but
I can move onto this topic.
What I have heard from some of our SBIR contacts and the
folks that I work with at the Department of Defense is that
they have discussed things that they can and cannot do because
of uncertainty in the budget and potential sequestration coming
up. But I have also seen on the small business side where that
set-aside funding for small businesses is more protected.
Senator Shaheen. Right.
Mr. Bundas. And it gives the agencies that may have their
larger budgets pulled back due to overall budget issues the
ability to still use this pot of SBIR money as a way to
potentially support some of their larger objectives and main
programs.
And for us, I think if anything, it may have helped a
little bit. Given the type of devices that we can develop,
manufacture, and deliver, and the level of support that we can
offer directly into these larger programs, then when agencies
do not necessarily have the money to work with somebody else
because of the main budget line item reduction, they can
leverage the SBIR funds with the small business, and
potentially accomplish the same objective.
Senator Shaheen. Good. Dr. Torbick? Either on that issue
or, yeah, I assume you wanted to respond to the other issue.
Dr. Torbick. Yeah, I will try to link a few and be brief.
Just in terms of the travel restrictions, you know, webinars,
going to meetings, you can easily get around some of those
types of restrictions just getting an hour a month.
And just that communication, I want to emphasize also
sometimes some of these solicitation topics get a little stale
because you are just kind of doing this paperwork through this
administration process. But by having that continued dialogue
with those managers, I think you are going to kind of keep up
with the speed of some of these technologies and innovations.
What I am doing now was kind of old six months ago, so if I
have to wait a whole other cycle just to have a chat with a
program manager, I might as well--it is not worth my time
frankly.
And then one quick comment about the walking dead
companies. As a small--you know, a very small business--I do
not know if Jason has similar feelings--I do not have time to
fight phase three appeals. I do not have time to kind of
explore if or compete with a VC if they are really just a
walking dead VC. So that is a concern.
I do not know exactly how that is all going to play out
yet, but one day I might be fixing a printer. I could be taking
phone calls. I could be on the phone making sales. I do not
have time to kind of discover whether or not a company is a
walking dead company. So, anything to reduce that would be
greatly appreciated.
Senator Shaheen. Well, hopefully it is not you who is
worrying about those walking dead companies. It is the Federal
agencies who are providing the--yes. Did you want----
Senator Ayotte. One of the things--one of the topics I
think when I heard--when we were talking about the issue of
venture capitalism and capital to start new businesses, and you
talked about this walking dead issue, you know, with so many
entrepreneurs here, and particularly with the Small Business
Administration here and I know others in the audience, how do
you view the regulatory climate, and what is the regulatory
climate's impact?
In other words, the Federal regulatory climate overall, how
does that impact your ability to thrive and grow? And what
thoughts do you have for us on the impact of Federal
regulations and how we can help that, because obviously it is
something that I know that both of us hear about quite
commonly, and I am sure Mr. Brown hears about it, too. But I
think with so many entrepreneurs here, it would be very helpful
to hear your feedback.
Senator Shaheen. Gray?
Mr. Chynoweth. Yeah. So, a couple of things, just one data
point. I know the JOBS Act had some things relating to IPOs and
the ability to privately register. And I think interestingly
that it has not actually--it has not really changed the
experience that much for IPO track companies. So I think there
was a lot of hope that that would enable people to get on track
and file earlier.
But actually, I think that it has not really--the
experience, at least from when I talked to counsel--to those
companies and ibankers about it--that it has not really changed
the track for the companies. So you are still going to be
essentially on the same path that you would have otherwise
before. But that is just an example where it has not actually
changed the experience for folks, although that could certainly
be just the perspective of the folks that I have talked to.
The second one would be just to give you kind of our--so
we, you know, as an internet services company provider, we have
thought a lot about, you know, do we want to go after, you
know, government contracts. And I think that, you know, while
it just always seems for us at least that it has been
dramatically easier to figure out how to get money from
customers than money from the government. And, you know, that
is not to say that it is not really important, and this, I
think, goes to the flexibility that Dr. Reder was talking
about, you know. It is very easy to figure out how to stand up
a website and do some of these information technology services,
you know.
But I think, you know, that is just our experience, and I
am not sure you actually ever even could compete. I would hope
it would never be as easy to get money from the government as
it is to get it from customers, you know. And so, that has just
been our experience, and I think it highlights why in some
fields it is even more important to get it right, like in
health sciences, where there is significant capital
investments. And other places are more suited for, you know,
kind of turn and burn, and you would spend six months on an
idea, and one person can bring something, you know, bring a
concept to market.
So it really is a wide variety, and if you think about
them, you know, they are all in the same space, but if you
tried to put them--categorize them, I think you are going to--
it is going to be under inclusive and over inclusive, so.
Dr. Reder. FDA defines the entire life sciences industry.
That regulatory path is the source of the billion-dollar plus
cost in order to get a product to market.
FDA has, I believe, been improving significantly over the
last few years. Everyone has a horror story but there have been
a number of new initiatives at FDA, for example, breakthrough
designation for new therapies that are truly first in class and
have the ability to really help. It has been a wonderful thing.
Regulatory expertise is the flip side of that, and as a
firm with 10 people, we do not have the bandwidth or the
ability to keep in-house regulatory experts, and so, we need to
use consultants and contractors. One initiative that I have
seen recently at the National Heart, Lung, and Blood Institute
has been very encouraging. They have hired a full-time
regulatory expert, someone with, I believe, about 30 years of
experience doing this. They are available to SBIR awardees, and
that is just a wonderful thing.
Now, of course, one person cannot serve the whole
community, but it is a pilot program. I would love to see more
of this in any of the highly-regulated industries where you
could, for a very small amount of money, serve the entire SBIR
community with regulatory expertise. You could even think about
extending this into areas like intellectual property. There are
certain service providers that are absolutely critical to our
success that are also very, very expensive to us. If the
Federal government, either through programs like that or
through its purchasing power, can help, that would be
wonderful.
Senator Shaheen. That is great.
Mr. Ferneau. I would echo the importance of creating that
kind of infrastructure, making those resources available to
people, to applicants. Borealis Ventures itself has just three
partners. We are a very small business ourselves.
Security regulations have become more complicated and now
apply to our business. And unfortunately, we often are treated
the same as Wall Street firms, billion-dollar firms. The
regulatory requirements that I personally have to undertake on
behalf of our company are significant. They may not seem
significant to Morgan Stanley, or to SAC, or other huge multi-
billion hedge funds. But they require days of my time on a
regular basis whenever we have to file a report.
The significance of that burden relative to what we are
talking about today with small businesses more generally, is
simply that I think it is always a challenge for the officials
who have the difficult task of trying to administer billion
dollar programs in Washington that span the entire economy to
fully appreciate the order of magnitude difference--multiple
orders of magnitude difference--in scale of a person managing
one, two, three, or 10 people, dealing with a hundred thousand
dollar kind of mind frame, or just tens of thousands of dollars
even. And then you have other officials who are dealing with
hundreds of millions and billions of dollars, or trillions of
dollars, in the budget at the Federal level.
You can never do enough to work hard to reduce the
regulatory barriers to the smallest companies participating. I
know this is really hard if you are an administrator and you
have to handle hundreds of thousands of applicants. But things
like the Phase Zero program of the SBIR where you actually try
to push some of the decision making on the application to the
local level, or providing easier access to small amounts of
capital to help improve Phase I application approval rates, can
be very useful where you basically push resources out to the
field.
To your point, Senator Ayotte, where you involve partners
in the State at the local level who are involved with these
applicants, that could be very useful. It could be very cost-
effective. It can also increase efficiency. And it also hopes
to address the reality of first-time principle investigators
applying who do not already have SBIR expertise. He does not
have the means to hire the kind of expert that Dr. Reder just
referred to, much less the institutional experience that Creare
has.
And so, I think if you can find ways not just to reduce the
regulatory barriers, but also to partner applicants with other
sources of expertise, whether those resources are going to be
funded by the agencies themselves or supported through
partnerships in the communities, that would be helpful.
Senator Shaheen. It is now 3:00, which is the time that we
had promised to end this hearing. I am going to ask Mr. Bundas
and then Dr. Gittell, if you would like to go ahead and respond
since you both had indicated you would like to. And then
closing thoughts before we wind up the discussion.
Mr. Bundas. Sure, I can be quick. One area of regulation
that we run into often is that of export licensing and export
control specifically for dealing with the types of devices that
we are making. I mean, it is thermal imagery. It is night
vision. Tactical advantage is important. National security is
important.
But a lot of the technology that we started the company
with has been around for a while, yet it is still classified
under DoD or Department of Commerce as a dual-use item. I get a
call from a guy in China every six months, hey, has there been
any movement on this.
I mean, it is a huge market of potential industrial
applications, at least that is what he tells me he wants this
for. I run into people all the time at trade shows from Europe
or from India or from Asia, and I just say, ``You know what? It
is not going to happen.''
I have made a call here and there, but, again, we are a
small business, and I do not have the time or the resources to
chase down trying to get approval for every potential market
that is out there only to find out that it gets denied, and I
have wasted a couple of months of my time.
So if there is a way to potentially streamline that
process, especially with the small business in mind where the
resources are not available on our end opening up these
markets, I think it could be potentially huge because it is a
global market nowadays. For the advanced technologies that are
being developed here in the U.S., we have got to open that up.
Senator Shaheen. Yes, and the reason you saw Senator Ayotte
and I smiling is because we have heard this before from a lot
of companies in New Hampshire. And there is actually a reform
under way to address the whole export control system that is
making some progress. There is a lot more that still has to be
done. But there is an effort to simplify it in a way that
certainly is going to help small businesses, because it is--as
you point out, it is very important.
Dr. Gittell. I just wanted to follow up quickly on the
points that Philip and others have made about the difficulty
for small entities at times to interact effectively with
Federal agencies and regulators. I think that applies to public
entities in the State of New Hampshire, as I am sure you are
aware of, and to quasi-public agencies, like the community
college system of New Hampshire.
We at times have difficulty competing effectively for
Federal Department of Labor and Department of Education grants
because the expectations are that we have a similar bureaucracy
of larger states such as New York and California and Florida.
We need the recognition that smaller States, that are less
bureaucratic and smaller in scale, have difficulty
administratively competing effectively for Federal grant money.
Maybe a program to look at which has been effective is the
EPSCoR program for competitive research that the NSF has, that
recognizes that some States have been funded relatively low on
a per capita basis. And there is a special effort made to make
those programs and services available to smaller States.
Senator Shaheen. I think that is a really good point. And
the whole issue, which could be the subject of another hearing,
is procurement that several people have raised, and the
challenges of trying to figure out how to navigate the Federal
procurement system in a way that can help small businesses take
advantage of some of those Federal contracts. So that is
certainly a topic that I think is worth future conversation.
Any final thoughts from any of you as we close out the
hearing?
Dr. Reder. I think we have heard many times about this
early stage gap in capital, and in the life sciences industry
it is acute. The venture capitalists are moving to later stage,
and they are also moving out of venture capital altogether.
That whole industry is contracting significantly. To say that
there were only 20 first-time deals done in the first quarter
of 2013 across the country is astounding. It was a total of $98
million.
This is the seed corn that eventually grows into new
therapies and new businesses. Whatever the Federal government
can do to help to address that problem will pay dividends.
In the absence of early stage funding, we are putting $30
billion a year into NIH research, which will not get developed.
Mr. Chynoweth. The last comment I would make would just be
to kind of underscore the theme of the community when I talked
initially about town, capital, and community. Senator Ayotte,
your comment about, you know, using this DRED to kind of
facilitate that local conversation, provide information. That
is one example, but there are also others, like New Hampshire
Technology Council, ABI, ICC. All of these things really do
capacity building at the community level.
And by far, the best way to--that we experience, you know,
trying to navigate complex systems, like the government or
like, you know, raising money for VCs, is to have an
entrepreneur that is next to you or that is one person removed
from you that you can talk to about that experience.
And so, the things that you can do, whether it is small
grants, like the DRTC, or supporting these type of community
organizations, really goes a long way to spreading that
knowledge. And, you know, I think is even more effective over
the long run than hiring--maybe even than hiring a dedicated
staff person to be, you know, part of DRED. Just getting it out
into the community and letting that kind of take the message
forward.
Senator Shaheen. Mr. Brown.
Mr. Brown. Yeah. My closing comments in listening to what
everybody has had to say today would be I encourage you to
reach out to SBA and to the other agencies, and I would say
especially SBA, because we meet regularly with Manny, as he
well knows, and the other program managers. We have, you know,
rather vigorous discussions on all types of issues.
But, you know, in a lot of the cases, those discussions are
driven by the agendas that we have in terms of the regulatory
environment in Washington as opposed to the issues that I am
hearing today. It is not to say we do not get calls from time
to time, but it is good hearing it from the entrepreneur, you
know, yourselves in terms of exactly the issues that you are
having.
And again, with this reauthorization still being put in
place and many of the provisions being fine-tuned and oiled, I
mean, anything that you see that may need to be tinkered, you
know. We are still updating the policy directives, et cetera.
So I just encourage you to bring your issues to our attention.
Senator Shaheen. Thank you. I would also point out that
Mary Collins from the SBDC is here, as is Greta Johansson, who
is the SBA director here in New Hampshire. So if you do not
know them, you should.
Other final thoughts from anyone on the panel? Yes?
Mr. Ferneau. Just real quickly. One of the strengths of New
Hampshire you will appreciate, Senator Shaheen and Senator
Ayotte, is that while we may be small and have these pockets of
expertise throughout the State, we now increasingly are working
together very effectively, and that is a great strength.
And part of that effectiveness that I just want to call out
is how responsive you and your staffs have been when our
companies or communities have needed help getting the DRTC
started or addressing various regulatory issues. And that is
the strength of New Hampshire. Part of our New Hampshire
advantage is that our community is relatively small and
connected. The ability to bring us together today in this
roundtable format to highlight these issues, I think bodes well
for the future.
We have come a long way in the decade since when we started
Borealis. Based on what we have seen across the State, it is
exciting looking forward. The Federal government has been
important along the way, but it can do even more, I think. We
are not asking for a lot, but I think there are high impact
opportunities for the Federal government to support the
continued growth of the economy here.
Senator Shaheen. Thank you. Senator Ayotte, closing
thoughts?
Senator Ayotte. I wanted to thank you so much again for
holding this hearing. I thought it was great to hear from all
the panelists today. And I know that there are also many
business owners in the audience.
And we will take this back to Washington. And, you know, I
really took to heart some of the ideas that you brought up on
the uniformity across agencies, for SBIR, the better
connections between the program managers and the businesses,
the importance of the skilled workforce and making sure that we
are obviously educating the next generation, particularly in
the STEM fields, and streamlining regulations to make sure that
we can make it more effective and efficient for you to be able
to grow jobs to start your business.
And it worries me when I hear about the lack of capital,
that if we do not have that seed corn for the next generation
of businesses and entrepreneurs, then we are going to have
difficulty really starting the new great ideas that I know many
of you probably have in this room. And I think that we can do
better in the Federal government because I do hear so many
stories from businesses about regulations that are holding back
entrepreneurship. And so, that is something that I want to
continue to work on, along with Senator Shaheen. So thank you
all for being here today.
And finally, I would just say that my office, I know as
well as Senator Shaheen's, are here to serve you. And sometimes
unfortunately when you do run into some of that red tape in
Washington that we want to cut through and eliminate, we can
help cut through it more quickly. And we would be honored to do
that. So thank you for being here.
And thank you again, Senator Shaheen, for holding this
important hearing.
Senator Shaheen. Well, thank you for joining me, and thank
you very much to all of our panelists. It has been a very
helpful discussion, I think. And as we think about the
challenges, particularly today, as we are still recovering from
the recession that hit us, and we think about the potential for
our small businesses to grow and to create the jobs that are
going to take us out of the recession, the more we can do to be
helpful to ensure that if we are passing legislation in
Washington, that is in response to concerns that we have heard
here at home, and that we are not hurting small businesses, but
we are helping them is very important.
So thank you all very much. Thank you for everybody who
came from far away today, to Mr. Brown, and Dr. Oliver, and for
everyone who has traveled from far parts of New Hampshire to be
with us as well.
And I would just like to echo what Senator Ayotte said
about the importance of our offices and being able to help you
address both concerns you may have about how agencies or
departments are operating, and also in terms of cutting through
red tape. We are really here to try and be a resource for the
people of New Hampshire, for the businesses of New Hampshire,
as you look at the challenges you face. So we may not always be
able to help you, but we certainly want to try. So make sure
you identify Senator Ayotte's staff and my staff, and know that
you can talk to them. And we will try and help you in every way
we can.
So again, thank you very much. I would just remind you the
record will stay open for two weeks before we submit it to the
Small Business Committee.
Senator Shaheen. Good afternoon.
[Whereupon, at 3:09 p.m., the hearing was adjourned.]