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An Assessment of the SBIR Program at the National Science Foundation (2008)

Chapter: Appendix D: Selected Case Studies

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Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
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Appendix D
Selected Case Studies

Rosalie Ruegg

TIA Consulting

CASE STUDY COMPANIES AND CONTACT INFORMATION

Case studies were performed for the 10 companies listed below. Each listing provides the company name, location, telephone number, principal interviewee and his or her title, and email contact address.


Faraday Technology, Inc.

Clayton, OH

937-836-7749

Dr. Jennings Taylor, CEO and IP Director

jenningstaylor@faradaytechnology.com


Immersion Corporation

801 Fox Lane

San Jose, CA

408-350-8835

Dr. Chris Ullrich, Director of Applied Research

cullrich@immersion.com


ISCA Technology, Inc.

2060 Chicago Ave #C2

Riverside, CA

951-686-5008

Dr. Agenor Mafra-Neto

President@iscatech.com

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

Language Weaver

4640 Admiralty Way, Suite 1210

Marina del Rey, CA 90292

310-437-7300

Mr. William Wong, Director of Technology Transfer

jwolfe@languageweaver.com (office manager)


MER Corporation

Tucson, AZ

520-574-1980

Dr. Roger Storm, CEO

rstorm@mercorp.com


MicroStrain, Inc.

Williston, VT

1-802-862-6629

Dr. Steven Arms, President

swarms@microstrain.com


National Recovery Technologies, Inc. (NRT)

Nashville, TN

615-734-6400

Dr. Ed Sommer, President and CEO

ejsommer@nrt-inc.com


NVE Corporation

Eden Prairie, MN

952-996-1603

Mr. Robert Schneider, Director of Marketing

bobsch@nve.com


T/J Technologies, Inc.

Ann Arbor, MI

734-213-1637, ext. 11

Ms. Maria Thompson, President and CEO

mthompson@tjtechnologies.com


WaveBand Corporation

Irvine, CA

949-253-4019, ext. 123

Ms. Toni Quintana, Director of Business Development

tquintana@waveband.com

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
CASE SELECTION PROCESS

The companies listed in Section D.2 were 10 of 12 companies who were contacted in the effort to obtain a targeted set of 10 cases. Of the 12, one company, Alderon Biosciences, Inc., of Durham, NC, declined the request for an interview without saying why. A second company, Triangle Research and Development Corporation of Research Triangle Park, NC, was contacted by phone and a review requested. The company principal was in the process of moving, making a site visit impractical. Although he was willing to discuss his company’s SBIR experience by phone, insufficient information was obtained to develop a full case study. The 10 companies listed all agreed to participate in the study and provided extended in-person interviews (generally from 1.5 to 2 hours in length) and usually also provided lab tours and company reports. All but three of the interviews were conducted at company headquarters. Three were conducted in Reston, VA, at a Navy Opportunity Forum.

The selection of the 12 companies contacted was not random. The companies were selected to provide companies of different age and size, pursuing different technologies, located in different parts of the country, with differing forms of ownership, and with some, although varying degrees of, commercial success. Some of the companies are university spin-offs; some are company spin-offs; some are neither. Some received many SBIR grants; some relatively few. Some continue to obtain a high percentage of their funding from government sources; others have reduced the percentage to low numbers.

The 12 companies who were asked for an interview were drawn sequentially from the following four lists:

  1. A list of 12 companies designated “stars” by the NSF SBIR Office was compiled at the request of the interviewer. The list showed companies sorted on the basis of whether they had received no Phase IIB grants, only one Phase IIB grant, or multiple Phase IIB grants. At the request of the interviewer, the companies were also selected to provide variation in state location, company age, years to first SBIR, sales volume (with categories ranging from $1 million-or-less to more than $10 million), and to provide at least one minority or woman-owned company. The “star” designation was said by NSF SBIR administrators to mean that the NSF Program Managers expected the companies eventually to achieve “better than average success.” The following six companies were selected from this NSF list of 12: Faraday Technologies, Immersion Corporation, ISCA Technologies, National Recovery Technologies, NVE Corporation, and T/J Technologies.

  2. A list of 47 companies that had received NSF SBIR grants and were showing associated commercialization results was compiled at the request of the interviewer by the NRC research team member with responsibility for

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

existing survey databases. From this list of 47, one company—Language Weaver, Inc.—was added to the existing case study set to provide a company that was very recently founded. Two already selected companies—Immersion Corporation and NVE Corporation—were noted to be also on this second list.

  1. A list of four companies located near the interviewer was compiled by the same NRC research team member with responsibility for survey databases, at the request of the interviewer. The intention was to reduce travel costs. Of the four companies, the two showing the most SBIR activity—Alderon Biosciences, Inc. and Triangle Research and Development Corporation—were selected as potential cases, but, as noted previously, neither led to actual case studies.

  2. A list of NSF SBIR recipients that would be presenting at a Navy Opportunity Forum in Reston, VA, in May 2005 was provided to the interviewers. Three companies were identified as having received NSF grants and had not already been selected for case study by other NRC research team members who were developing DoD-focused cases. These were MicroStrain, Inc., WaveBand, and MER Corp. The latter company was found also to be on the second list above.

Thus the 10 companies selected do not represent a random sample. Yet drawing them from different lists reduces bias present in any single list. A bias that remains—particularly due to the fact that the third list did not yield cases—is that they all may be regarded as providing examples of revenue-earning SBIR-funded companies. They nevertheless provide considerable diversity.

The 10 selected companies are located in seven states: California, Ohio, Tennessee, Minnesota, Arizona, Vermont, and Michigan. They are developing 10 different technologies, including technologies in the areas of software, electrochemical processes, information technology for pest monitoring and control, electronics, manufacturing processes, and nanomaterials. They range from a more than 20-year-old company founded in 1983, and using SBIR to make a new technology start, to a very “new” company founded in 2002 and already realizing significant revenue. They include very small companies with only about a dozen employees, as well as several companies with 70 or more employees, and one with nearly 150 employees. They include companies that were able to commercialize product very early and those whose technologies will take considerable time. Annual revenue among the companies ranges from $2 million to about $24 million. Among the companies are a university spin-off, a large company’s spin-off, a small company’s spin-off, a company started by a graduate student, one started by a retiring large-company executive, several started by university researchers, several started by scientists/entrepreneurs, and one started by a

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

professor-husband and entrepreneur-wife team. They include two woman-owned companies, one of which is actively operated by a woman who is also a member of a minority group. They include companies whose share of annual revenue contributed by SBIR and other government grants ranges from a low of 4 percent to a high of 70 percent. Commercialization strategies include licensing agreements, contract research, sale of product produced in-house, commercialization partnerships with larger companies, as well as sale of the technology or of the company to other companies.

While they differ in these many respects, the companies in the case study set are similar in at least three respects: (1) All of the 10 companies have positive annual revenue, reflecting the selection bias that favored relatively successful grant recipients, though not the most successful grant recipients. (2) They share the expressed view that SBIR grants were critical to their ability either to get started at all or to develop capabilities critical to their businesses. (3) Without exception, they sought and received grants not only from NSF but also from other agency SBIR programs, and, in multiple cases, from other government funding programs as well—principally the Advanced Technology Program (ATP) and the Defense Advanced Research Projects Agency (DARPA).

Given the limited number of case studies performed, and the diversity that characterizes them, the cases are illustrative only and cannot be taken as necessarily representative of any of the particular features they exhibit. Yet, a number of common themes run through them, as discussed in the body of the report. Interviewees were asked their views on how the SBIR program might be improved. These views are brought out in Section 4. First, brief synopses of the cases are presented and then the cases are presented in full.

CASE SYNOPSES

Faraday Technology. This case study shows how SBIR grants enabled a scientist-founded company in Ohio to develop an underlying electrochemical technology platform, and, through continuing innovation, to leverage it into multiple lines of business. The technology provides cleaner, faster, more precise, and cost-effective processes to add or remove materials from many different kinds of media, ranging from metal coatings to fabricated parts, to electronic components, to contaminants in soil. The challenges of laying down uniform coatings in tiny holes of many layers of stacked circuits, for example, differ sufficiently from those of producing super smooth surface finishing for titanium jet engine components. The range of these challenges justifies application-specific research to develop the necessary processes. SBIR grants enabled the company to develop the technical capability needed to pursue these many application areas. The company uses an aggressive patenting strategy and licensing to generate business revenue. The relatively modest licensing fees rest on a much larger revenue stream realized

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

by Faraday’s customers (their licensees). At the time of the interview, nearly half the company’s revenue came from government sources.


Immersion Corporation. This case study illustrates how government funding was used by a university spin-off to leverage private funding to develop technology inspired by NASA technology. The technology adds the sense of touch to diverse computer applications—enhancing entertainment experiences, increasing the productivity of computer use, training doctors, and more. With SBIR assistance, the company has developed a large intellectual property portfolio, which it licenses to other companies, increasing the value of clients’ hardware and software. Over its first decade, the company has grown the business to approximately 141 employees and $24 million in annual revenue. Immersion is the largest of the companies included in the case study set. Government R&D support at the time of the survey comprised only about four percent of current revenues.


ISCA Technology, Inc. This case study illustrates how SBIR grants helped a young company that was started with export sales survive a collapse of those sales. Using SBIR, the company, founded by a university researcher, was able to innovate, bringing new technology to the important but then largely static field of pest monitoring and control. The company developed better lures and smarter traps, integrating them with advanced communication tools. ISCA developed new markets in the United States and reestablished export markets. The effect of the company’s technologies has been to reduce grower need for insecticides, cutting costs to growers, reducing unwanted effects on insects, lowering pollution, and improving the quality of produce. Another effect is to provide early warning of mosquito outbreaks, providing potential health benefits. Government funding sources at the time of the case study comprised about 40 percent of company revenues.


Language Weaver. This case study shows how an NSF SBIR grant was critical to bootstrapping a technology with national security and economic potential out of a university into use on a fast-track basis. The would-be company, unable to obtain private funding was about to shelve the idea, when the idea arose to seek a grant from NSF. The SBIR grant afforded the technology the credibility required to obtain the management, additional funding, and strategic partners it needed to make a viable business. The technology is statistical machine translation that Language Weaver has applied to translating Arabic, Farsi, Chinese, and other languages. It is being used to create translations of Arabic broadcasts and for other military-related purposes. In addition to licensing its technology to the military, the company also has civilian customers for its software licenses. Without the NSF SBIR grant, a technology that turned out to be extremely timely would not have been developed in the same time frame. From its founding in 2002, Language Weaver has moved from being almost entirely dependent on

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

government grants to cutting the share of government grants to less than half of company revenue by the time of the case study. In 2005, the majority of revenue came from licensing.


MER (Materials and Electrochemical Research) Corporation. This case study illustrates the continuing role played by SBIR grants in the research of a grant-winning company started 20 years ago. The SBIR program was said to be particularly important to the owners as a means for not losing control of the company. It has allowed the company steadily to improve and advance its R&D capabilities in advanced composites, powders, coatings, reinforcements, nanotubes, manufacturing processes to produce near net shape metals and alloys, and energy conversion systems. In parallel with its R&D activities, MER is commercializing its technologies, primarily through military channels. One current focus of the company is on commercializing its rapid manufacturing near net shape processing technology. The process allows a variety of very complex shapes to be produced without tooling, without waste of materials, with desirable joining features, and at a cost advantage to machining techniques. At the time of the case study, roughly 60% of the company’s funding comes from government sources, and the remaining from engineering services and product sales.


MicroStrain, Inc. This case study shows a still-small company that leveraged EPSCoR grants to obtain SBIR grants. With SBIR support, it developed an innovative line of microminiature, digital, wireless sensors which it manufacturers. These sensors can autonomously and automatically collect and report data in a variety of applications. They have been used to protect the Liberty Bell during a move and to determine the need for major retrofit of a bridge linking Philadelphia and Camden. Current development projects include power harvesting wireless sensors for use aboard Navy ships, and damage tracking wireless sensors for use on Navy aircraft. Unlike most research companies, MicroStrain, started by a graduate student, has emphasized product sales since its inception in 1985. For a relatively small cost for installing a wireless sensor network, the company has demonstrated that millions of dollars can be saved. At the time of the case study, little more than a quarter of the company’s revenue came from government sources.


National Recovery Technologies, Inc. (NRT). This case study shows how a company founded more than 20 years ago used the SBIR to rejuvenate its technology platform in order to enter new growth markets. NRT used SBIR grants early in its history to support R&D underlying its first line of business—mixed municipal solid waste recycling and plastics recycling—lines which did not achieve the original projected growth. In its second decade, NRT used SBIR grants to leverage its existing technological base in a directional change that would offer the potential of increased growth. One of these areas of research was to develop an optoelectronic process for sorting metals at ultra-high speeds into

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

pure metals and alloys. Another area of research was to combine fast-throughput materials detection technology with data compilation, retrieval, analysis, and reporting to provide an airport security system that represents an improvement over the current nonautomated, manual inspection system. At the time of the study, the Transportation Security Administration (TSA) was evaluating NRT’s system, a necessary step in qualifying it for use in airport security. While it develops the metals reprocessing and security product lines, NRT has maintained a steady revenue stream of several million dollars annually, primarily from sales of plastics analysis and sorting equipment.


NVE Corporation. This case study shows how a company, which traces its origins to a large company, used SBIR and other federal grants to help launch the company, to keep it from failing, and to improve its ability to attract capital from other sources. Since its founding, the company has pursued development of MRAM technology that uses electron spin to store data and that promises non-volatile, low-power, high-speed, small-size, extended-life, and low-cost computer memory. NVE has developed substantial intellectual property in MRAM. As NVE pursued MRAM development, it saw related potential applications, such as magnetic field sensors. The company has licensing arrangements with a number of other companies. Approximately half of the company’s funding comes from government funding, and the remainder from commercial sales, up-front license fees, and royalties. The company is now traded on the NASDAQ Small Cap Market.


T/J Technologies, Inc. This case study features an innovative materials research company, facing a relatively long time to commercialization, which has used a “building block” strategy, leveraging off SBIR and other federal grants to get started and build needed capacity. With this increased capacity, the company was able to go after government research contracts. The next step towards commercialization, underway at the time the case study was conducted, was to form partnerships with global companies for testing and demonstrating its advanced materials for electrochemical energy storage and conversion, and eventually to reach civilian markets. The case shows a company struggling to move up the value chain in order to receive more value for its technology in an environment where funding is scarce and negotiations are difficult. At the helm of the company is a minority woman, during a time that woman-owned businesses received less than 10 percent of SBIR Phase II grants, and minority woman-owned businesses received an even smaller percentage. The company, at the time of the case study, was receiving approximately 15–20 percent of its revenue from the SBIR/STTR program and the remainder primarily from contract research.


WaveBand Corporation. This case study illustrates the role played by SBIR grants in the creation of a company as a spin-off of another small company. It also shows how the company used SBIR and other research funding sources to

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

develop a portfolio of technologies attractive to a larger company that recently acquired it. The case illustrates the dual, unique roles played by highly targeted SBIR grants from defense agencies and by less targeted grants from NSF. The company specializes in antennas that rely on an electron-hole plasma grating to provide rapid beam steering and beam forming without the use of bulky mechanically moved reflectors, which are slow, and electronically steered phase shifters, which are fast but expensive. WaveBand’s antennas reportedly offer a price advantage 100 times more favorable to buyers than traditional systems. At the time of the study, approximately half of WaveBand’s revenue comes from SBIR and other government grants.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

Faraday Technology, Inc.1

THE COMPANY

After a stint in a large company research lab where few of the research ideas actually became products, Dr. E. Jennings Taylor was eager to test the waters in a small company environment. He subsequently worked at first one, then another small research company in the Boston area. During this period the entrepreneurial bug bit, and he added an M.S. in technology strategy and policy at Boston University to his Ph.D. in material science from the University of Virginia. Shortly afterwards, he left Boston for Ohio where he launched his own company, Faraday Technology.


Dr. Taylor chose Ohio for two reasons: It was his home state, and, while at Boston University, he had heard about the Ohio Thomas Edison Program, which offered an incubator system for business start-ups. The incubator turned out to be an old school building in Springfield. Basement space was provided at the rate of about $2.00 per ft2, plus telephone answering and part-time use of a conference facility. It was modest assistance, but it gave the company inexpensive space to get started. Two years later, the company was able to move into a research park near Dayton, and, two years after this, into a custom-built facility, which has since been expanded. The custom facility provides space for the development of pilot-scale prototypes of electrochemical-based processes.

The staff of approximately 10 full-time and 9 part-time employees includes researchers and experienced manufacturing engineers. Dr. Taylor, who is a registered patent agent, serves not only as CTO, but also as IP Director. The company has developed core business competencies in patent analysis. The staff also includes a full-time marketing director who oversees implementation of the company’s strategic marketing plan for developing new implementation areas and customers.

The company has collaborative arrangements with a number of universities, including Columbia University, Case Western Reserve University, University of South Carolina, University of Dayton Research Institute, University of Cincinnati, Ohio State University, Wright State University, University of Nebraska, University of California-San Diego, United States Naval Academy, University of Virginia, and others. It often employs students, professors, and postdocs in a research

1

The following informational sources informed the case study: interview at the company with company founder, CTO, and IP Director, Dr. E. Jennings Taylor; telephone discussion with company marketing director, Mr. Phillip Miller; company Web site: <http://www.faradaytechnology.com>; company brochures and other company documents; news articles; Dun & Bradstreet Company Profile Report; and earlier interview results compiled by Ritchie Coryell, NSF (retired).

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

FARADAY TECHNOLOGY, INC.: COMPANY FACTS AT A GLANCE

  • Address: 315 Huls, Clayton, OH 45315

  • Telephone: 937-836-7749

  • Year Started: 1991 (incorporated in 1992)

  • Ownership: private; majority woman-owned

  • Revenue: Approx. $2 million annually

    Approx. $6.6 in direct cumulative commercial sales

    Approx. $22.9 in cumulative licensee sales

    • Revenue share from SBIR/STTR grants & contracts: 48 percent

    • Revenue share from sales, licensing, & retained earnings: 52 percent

  • Number of Employees: 10 full-time, 9 part-time

  • Issued Patent Portfolio: 23 U.S., 3 foreign

  • Issued Patents per Employee: 1.4

  • 3 Year Issued Patent Growth: 130 percent

  • SIC: Primary SIC: 8731, Commercial Physical Research

    87310300, Natural Resource Research

    Secondary SIC: 8732, Commercial Nonphysical Research

    87320108, Research Services, Except Laboratory

  • Technology Focus: Electrochemical technologies

  • Application Areas: Electronics, edge and surface finishing, industrial coatings, corrosion countermeasures, environmental systems, and emerging areas, e.g., fuel cell catalysis and MEMS manufacturing.

  • Funding Sources: State and federal government grants and contracts, government sales, commercial sales, licensing fees, reinvestment of retained earnings, and private investment.

  • Number of SBIR grants: 47

    • From NSF: 10

    • From other agencies: 37

capacity. The company also has collaborated with national laboratories, including Los Alamos National Laboratory.

Asked what drives the company, Dr. Taylor responded, “What drives us is we are technologists and we want to see our stuff implemented…. A company like Faraday is an innovation house for a number of companies that are not well positioned to innovate themselves.”

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
THE TECHNOLOGY AND ITS USE

The company’s mission, which has not changed over time, is to develop and commercialize novel electrochemical technology. Called the Faradayic™ Process, the company’s platform technology is an electrically mediated manufacturing process that offers advantages of robust control, enhanced performance, cost effectiveness, and reduced hazards to the environment and to workers as compared with using chemical controls. Electrical mediation entails the sophisticated manipulation of non-steady-state electric fields as a process control method for inventing and innovating electrochemical processes, which add to or remove material from targeted devices and other media.

The technology’s advantages of cleaner, faster, more precise, and cost-effective results save money for the company’s customers and support value-added manufacturing for them. It will allow, for example, electronics manufacturers to make smaller circuit boards with 20 or more layers stacked on a single board, with each layer connected by tiny holes uniformly plated with copper.

Faraday is applying its technology platform in multiple applications. Developing each new application area entails a new set of technical problems and is research intensive. Over the company’s first decade, it has developed more than six application areas. About 25 percent of the business is currently in the electronics sectors, and about 28 percent is in edge and surface finishing. Environmental applications account for 15 percent of the business and include effluent recycling and monitoring. Industrial coatings account for about 6 percent of the company’s business. Counter measures to corrosion account for another 20 percent. Emerging technologies, including nanocoatings, 3-D MEMs manufacturing, and fuel cell catalysis make up the remaining 6 percent of the business. The company is always looking for the next manufacturing process for which it can solve a problem using its Faradayic™ process, and attract new customers.

THE ROLE OF SBIR IN COMPANY FUNDING

Dr. Taylor became aware of the SBIR program from working in two SBIR-funded companies during the early part of his career. Were it not for this experience, he is doubtful that he would have become aware of the SBIR. With his knowledge of the program, he applied for an SBIR grant early in 1993, soon after the company was incorporated. The first SBIR grant was from DoE to harness electrical mediation for monitoring contaminants in soils and groundwaters. A follow-on Phase II application was not successful. Next the company received an SBIR grant from the Navy for a sensor application, followed by non-SBIR funding of more than $1 million from DARPA for developing process technology to clean up circuit board waste. At that point the company received several EPA SBIR grants to address additional environmental problems. A Phase I SBIR grant from the Air Force followed, and still later the company received SBIR grants from other agencies including NSF. In total, the company has received 47 SBIR grants, 28 of them

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

TABLE App-D-1 Faraday Technology, Inc.: SBIR/STTR Grants from NSF and Other Agencies

NSF Awards

Number

Amount ($)

Other Agency Awards

Number

Amount ($)

Total Number

Total Amount ($)

SBIR Phase I

5

470,000

SBIR Phase I

23

1,875,000

28

2,345,000

SBIR Phase IIa

4

1,986,000

SBIR Phase IIa

12

6,624,315

16

8,610,315

SBIR Phase IIB/Enhancements

1

350,000

SBIR Phase IIB/Enhancements

2

749,900

3

1,099,900

STTR Phase I

2

200,000

STTR Phase I

0

0

2

200,000

STTR Phase II

1

532,000

STTR Phase II

0

0

1

532,000

STTR Phase IIB/Enhancements

0

0

STTR Phase IIB/Enhancements

0

0

0

 

Totals

13

3,538,000

 

37

9,249,215

50

12,787,215

aExludes Phase IIB/Enhancement awards which are listed separately.

SOURCE: Faraday Technology, Inc.

Phase I, 16 Phase II, and 3 Phase IIB or Phase II enhancements. From NSF, it has received 5 Phase I grants, 4 Phase II grants, and 1 Phase IIB grant. Table App-D-1 summarizes the company’s SBIR/STTR grants in number and amount.

SBIR funding has been an essential component of the company’s funding, particularly in the early years when nearly all the funding came from SBIR grants. In fact, according to Dr. Taylor, SBIR grants are involved in all areas of application pursued by the company. There are concentrations of SBIR funding in certain areas. Some things started out under SBIR, but later other sources of funding supported further research. Some things started out under other sources of funding, but later entailed an SBIR funding component for further development.

Taking into account all funding sources, the company obtained financial support from state and federal government grants and contracts, government sales, commercial sales, licensing, retained earnings, and private investment. Historically, SBIR/STTR grants and federal research contracts have comprised approximately 48 percent of total revenue. The next largest share at 28 percent has come from commercial sales. Sales to the government have comprised about 15 percent. Licensing has provided approximately 3 percent. Reinvestment of retained earnings and facilities reinvestment has comprised another 9 percent and 2 percent, respectively.

According to company sources, the SBIR program has enabled the company in a variety of ways to do what it otherwise would not have done. Reportedly, it has allowed the company to undertake research that otherwise would not have been undertaken. It has sped the development of proof of concepts and pilot-scale prototypes, opened new market opportunities for new applications, and led to the formation of new business units in the company. It has enabled the company to increase licensing agreements for intellectual property. It has led to key strategic

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

alliances with other firms. It has also enabled the hiring of key professional and technical staff.

The SBIR conveys more than dollars to the grantee, according to Dr. Taylor. “It is well structured to allow taking on higher risk, and it is highly competitive. The larger government programs tend to have specific deliverables instead of looking at the feasibility of high-risk activities. So to me, it [the SBIR program] is very unique. It is understood that the program is highly competitive, therefore, there is prestige associated with gaining an SBIR grant.”

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

Historically the company’s business strategy has been to determine a market need that can potentially be met by an adaptation of its Faradayic™ Process. Then it has pursued an SBIR grant or other sources of research funding to support the necessary research and to develop a pilot-scale prototype of the process. The company actively files patents to protect intellectual property as it develops new technical capabilities. It also investigates who is citing Faraday’s patents in different application areas, obtaining a patent file wrapper to see the documentations that occur in the prosecution of each citing patent. This allows Faraday to see how other companies have claimed around Faraday’s patents, and gives Faraday background knowledge about potential customers in different areas of interest. Patents and the fees they generate are the central focus of Faraday’s business strategy. Thus far, the company has 23 U.S issued patents and three foreign issued patents, which, historically, amounts to 1.4 issued patents per employee.

A major route to commercialization has been to license “fields of use” to interested customers. Company staff members regularly participate in conferences and trade shows to help inform potential customers of Faraday’s existing and newly emerging capabilities. The company’s strategic marketing plan identifies potential customers for further contact. Once engaged, potential customers issue a purchase order to Faraday to adapt its technology for the customers’ needs. In addition to the purchase order, the customer typically pays additional consideration to Faraday contractually to encumber the technology into a “no-shop/stand-still” position, effectively taking the product off the market during the period of adaptation and evaluation. The potential customer has an option to acquire exclusive rights to the technology by paying a negotiated up-front fee and a license fee in the range of 3 percent to 5 percent of the user’s generated revenue for the life of the patent. The company also performs contract research for hire, and engages in product design and vending for equipment manufacturers. In the future, Faraday hopes more frequently to form strategic partnerships at the outset of a research program both for the purpose of securing research funding, but also to have a better defined path to market.

Although the company’s annual revenue of roughly $2 million is relatively modest, Dr. Taylor makes the point that its license fees signal on the order of 20 to

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

30 times as much revenue generated by customers who are using Faraday’s manufacturing processes. In Dr. Taylor’s words, “Based on calculations we have done using our royalty and licensee revenue and associated multipliers, we believe that we have created on the order of $30 million in market value. Of course, Faraday only reaped a small part of this.” Over its history, Faraday has generated direct commercial sales of approximately $6.6 million. Customers realize value from Faraday’s processes in several main ways: lower cost manufacturing processes, higher quality output, and a combination of the two.

Beyond developing technical capabilities that lead to revenue for Faraday and value-added for its customers, Dr. Taylor pointed to a whole “undercurrent” of effects that the SBIR is having that nobody is really able to capture. “For example, one of our customers likely was going to move off-shore if it could not find a cost-reducing solution to a manufacturing problem it had. Faraday was able to meet the need through innovative research. Of course, I can’t prove it, but I think the technology solution figured importantly in their decision not to move. So what’s the value of having a company remain in the United States? That’s an example of the benefit of innovation funded by SBIR that is not usually factored into the value of the SBIR program. I can’t quantify the value; yet I feel strongly that it is true based on what I know.”

As an example of another difficult-to-capture type of benefit, the technology also offers the potential of environmental effects in several ways. For one thing, by using electricity to achieve results, the Faradayic™ Process reduces the need for polluting chemical catalysts. For another, the process enables the capture of materials from industrial process waste streams. Yet another emerging application is to control the flow of contaminants through soil for more cost-effective capture and cleanup.

Educational benefits also result from the company’s activities. Largely as a result of participating in NSF’s annual conference, the company became active in encouraging young people to pursue careers in science. It has provided internships to three junior high students; it has employed several high-school teachers during the summer; and it annually hosts a high-school science day. Moreover, as a result of the company’s many collaborative relationships with universities, it has employed about 20 undergraduate and graduate students, one of whom did a Ph.D. dissertation and another, a master’s thesis under the Dr. Taylor’s supervision.

The innovation process and the multi-faceted roles played by the SBIR are complex and nonlinear, noted Dr. Taylor. He recalled several Phase I grants that did not go on to Phase II. By one standard, these would be considered “failed grants.” Yet, he explained, after some twists and turns, the concepts explored in these earlier Phase I grants eventually came to fruition and became important application areas. For example, a “failed” Phase I grant provided the seed for later electronics work that now provides 35 percent of the company’s business and accounts for 8 of its patents. “It is not a tidy path; it is a cumulative process.”

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
VIEWS ON THE SBIR PROGRAM AND PROCESSES

Dr. Taylor made a number of observations about the SBIR program and its processes that may serve to improve the program. These are summarized as follows:

Need to Recognize Multiple Paths to Commercialization

Dr. Taylor expressed the hope that it will be recognized that there are multiple paths to commercialization that have merit. He pointed out that it is particularly important for agencies “to understand the various ways to get to the commercial end game—which could involve venture capitalists, could involve strategic partners, could involve an ongoing company trying to augment its business. Agencies need to be flexible. It would be a myopic view if we were to conclude that SBIR funding should only go to companies that are going to do no more than, say, four years of SBIR work and then go public. That is a model, but another model is that innovation is an ongoing thing…. The idea of some limit to the number of grants a company can receive cannot be addressed well in absolute terms. Rather, it is important to look at a company’s history and see if it is accomplishing something in the longer run—helping to meet R&D needs of an agency or seeding work that eventually turns into something useful.”

He went on to raise the issue of a company that receives many DoD and NASA SBIR grants, posing the question: “Would that make it a mill? Well, I would expect that they are providing a research service that DoE and NASA want…. If the grants process is modeled correctly, with effective criteria and review, and if it is functioning well, there should be no mills without value added, because nobody would keep funding them unless they do have value.” In short, the existence of a mill implies a program breakdown, where SBIR is not taken seriously, where inadequate attention is given to proposal review and project selection.

Mr. Phillip Miller, company marketing director, noted that most SBIR grantees are not OEM suppliers of product; that most grantees develop technology and intellectual property and in turn sell the innovations to customers through a variety of means—not just through products shipped. Yet, the agencies who collect information about the SBIRs impact, typically ask only about products.

Recommendation for Simpler Accounting

Dr. Taylor’s opinion is that there are a lot of misconceptions among prospective applicants about accounting requirements, particularly in terms of the indirect rate and what is allowable and what is not. A company’s overhead rate may look higher than others because it puts items in it that others put in the direct rate. It is important to look at the overall rate in comparing costs across companies. Furthermore, Dr. Taylor mused, “If the program is geared toward commercialization, and patenting is an important component of this, why wouldn’t they allow you to charge patent costs? After all, the government has so called ‘march-in’

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

rights,’ Furthermore, what is a patent cost? Clearly filing fees and maintenance fees are patent costs. But, are patent attorney’s fees associated with evaluating and assessing the technical and patent literature also patent costs? We often use consultants and professors to do the same work and allocate these costs to professional services.” He also questioned why the DoD SBIR forms allow you to charge fees and to pay royalties, but the other programs he is familiar with do not have these features. Noting that it is the financial side that is the most daunting to technical people, he urged the SBIR program to give more attention to education on financial issues. He noted that some small companies have very poor accounting systems, and they could benefit from learning how to set up an appropriate system.

SBIR Application Process

According to Dr. Taylor, other agencies’ online submission application processes are easier to manage than the system implemented at NSF. His opinion is that NSF’s application seems a bit strange from a business standpoint because the form is geared to universities, which comprise the majority of NSF’s customers. It is not a dedicated, customized form for SBIR.

Commercialization Issues

Dr. Taylor had heard that a commercialization index is being used to rate SBIR companies, but he did not know how it is computed. He expressed the view that license revenue should be treated differently in computing the index than product sales and other revenue, because a license fee represents on the order of 3 percent to 5 percent of the revenue generated by the licensee. This means that a multiplier of 20 to 30 would need to be applied to license fees to put them on a comparable basis with product sales.

He also emphasized the importance that should be placed on matching funds as a way to indicate commercial potential. “Bringing in cash matching funds is a more powerful signal of commercialization than any review panel’s opinion.”

Misconceptions About the SBIR and Other Government R&D Partnerships

Dr. Taylor noted that many of the other companies he has worked with have had no awareness of the SBIR program. He recalled a strategic partner who had misunderstandings and misconceptions about the SBIR that interfered with negotiations on a strategic alliance. Another partner, he noted, was afraid of march-in rights, and this was a major encumbrance to making a deal. “More public education might help, or even the elimination of the march-in rights clause.”

Turning to the NSF’s SBIR program, Dr. Taylor commented on some of its features as follows:

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
Support of Manufacturing Innovations

According to Dr. Taylor, the NSF SBIR program is unique in its strong support of manufacturing innovations. In his words: “NSF seems more supportive of manufacturing-type innovations…. NSF seems to actively appreciate the importance of innovating in manufacturing.” He contrasted this interest with a lack of interest in manufacturing on the part of most other SBIR programs.

Specification of Topics

Dr. Taylor saw NSF’s SBIR as having more topic flexibility than the other programs. He indicated that this flexibility is helpful for a business like his that wishes to pursue various application areas. Further, he noted that the NSF SBIR is very responsive to national priorities and needs in crafting its topics.

Portfolio or Program Managers

“NSF’s special strength is in what they call their portfolio managers. They have people who manage the different technology sectors. NSF is more proactive in helping grantees through the commercial stuff…. To me, it is a very, very good, solid interactive group. …They hold you to task, but I like that…. I am impressed with the NSF group because they themselves are an innovative entity—they are looking for ways to continually improve the program; improve their grantee’s conference. … For example, NSF is trying to expand its matchmaker program—which was geared towards the venture capital community—to include strategic industrial partners … and to me it just makes sense. They had about 12 potential strategic industrial partners in Phoenix” [location of the last NSF annual grantee conference].

Commercialization Assistance

A three-day patenting workshop offered at the NSF annual conferences won special praise from Dr. Taylor. At the same time, he found it interesting that many grantees said they couldn’t afford the time to attend. To him, this indicated not only an excellent opportunity missed, but a lack of seriousness about patenting, and, therefore, a possible lack of effective commercialization plans.

Lack of Travel Funds

Noting that “NSF hasn’t had one person out here,” Dr. Taylor expressed his view that it is unfortunate that NSF staff does not have the funding to travel. At the same time, he acknowledged that NSF requires grantees to attend the annual conference, and the conference provides a forum for interacting with NSF program managers and other people “who are at a similar stage of business as you.” He added that NSF does not appear to be unique in a lack of travel funding.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
Proposal Review Process

Commenting on NSF’s review process, Dr. Taylor noted that he has served on panels, and “it is an extensive process.” He explained that the technical and business reviewers sat together on the panels in which he participated, and commented that this combining of the reviewers, which may be unique to NSF, is a valuable approach.

SUMMARY

This case study shows how SBIR grants enabled a start-up company in Ohio, Faraday Technology, Inc., to develop an underlying electrochemical technology platform and, through continuing innovation, to leverage it into multiple lines of business. The company’s main focus is on developing cleaner, faster, more precise, and more cost-effective processes to add to or remove target materials from many different kinds of media, ranging from metal coatings to fabricated parts, to electronic components, to contaminants in soil. By offering innovative processes that reduce costs for customers and support value-added manufacturing, the company serves as an innovation house for a number of manufacturing companies that are not well positioned to innovate themselves.

The case illustrates that a basic technology platform can be leveraged through additional research into many novel applications to solve specific problems. Because the application areas are so different, they each have required advances in scientific and technical knowledge for success. The challenges of devising a process to uniformly coat tiny holes through 20 or more layers of circuits stacked on a printed wiring board, for example, are quite different from the challenges of developing a process to produce super smooth surface finishing for titanium jet engine components.

The case illustrates a business model that relies primarily on an aggressive patenting strategy and licensing in multiple fields of use to generate business revenue. Essential to leveraging the technology platform is the alignment of intellectual property and marketing strategies. The company continually assesses market drivers to identify needs that may be addressed by Faraday’s platform technology. The company works closely with patent firms, has a patent professional on staff and has its engineers and scientists trained in patent drafting. Furthermore, the company has long employed a full-time marketing director.

The case also demonstrates how relatively modest licensing fees rest on a much larger revenue stream realized by the innovating firm’s customers. Further, by leveraging advances from one application area into the next, customers in different industry sectors benefit from the company’s past advances in other industry sectors. Economists studying the rationale for government support of scientific and technical research have identified the licensing of technology as one of the factors conducive to generating higher than average spillover benefits.

Finally, this case compares and contrasts aspects of different agency SBIR programs. It suggests ways for improving the SIBR program.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

Immersion Corporation2

THE COMPANY

As a Stanford graduate student in mechanical engineering, Louis Rosenberg, investigated computer-based and physical simulations of remote space environments to provide a bridge across the sensory time gap created when an action is performed remotely and the resulting effect is known only after a time delay. For example, a satellite robot tightens a screw and scientists on the ground find out with a delay if the screw was stripped. As earlier described by Dr. Rosenberg, “I was trying to understand conceptually how people decompose tactile feeling. How do they sense a hard surface? Crispness? Sponginess? …Vision and sound alone do not convey all the information a person needs to understand his environment. Feel is an important information channel.”3


From aerospace researcher, Dr. Rosenberg turned entrepreneur with a focus on the less-studied sensory problem of feel, which was also closely attuned to his specialization in mechanical engineering. He took as his first business challenge to convert a $100,000, dishwasher-sized NASA test flight simulator into a $99 gaming joystick. To take advantage of his breakthroughs, he founded Immersion Corporation in 1993 in San Jose, initially drawing heavily on other Stanford graduates to staff the company. Reflecting the early NASA-inspired challenge, Immersion’s first products were computer games with joysticks and steering wheels that move in synch with video displays. Other application areas followed.

The company has now grown to 141 employees. Growth over the first seven years reflected internal gains mainly in the entertainment area. Then, in 2000, Immersion grew mainly by acquiring two companies: Haptic Technologies, located in Montreal, Canada, and Virtual Technologies, Inc.4, located in Palo Alto, California, both acquisitions now an integral part of Immersion Corporation. And, in 2001, Immersion acquired HT Medical Systems, located in Gaithersburg, Maryland, renamed it Immersion Medical, and made it a subsidiary of Immersion Corporation. In the case of Haptic Technology and HT Medical Systems, the acquisitions brought into the company competitors’ technologies in application

2

The following informational sources informed the case study: interview at the company with Mr. Chris Ullrich, Director of Applied Research; company Web site: <http://www.immersion.com>; company 2004 Annual Report; company product brochures; Stanford University School of Engineering alumni profile of Dr. Rosenberg in its 1997–1998 Annual Report; Dun & Bradstreet Company Profile Report; and ownership information obtained from Charles Schwab Investment Service.

3

Quote is taken from the Stanford University School of Engineering alumni profile of Dr. Rosenberg contained in its 1997–1998 Annual Report.

4

Mr. Ullrich, who was interviewed for this case, joined the company in 2000, in conjunction with the acquisition of Virtual Technologies.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

IMMERSION CORPORATION: COMPANY FACTS AT A GLANCE

  • Address: 801 Fox Lane, San Jose, CA 95131

  • Telephone: 408-467-1900

  • Year Started: 1993

  • Ownership: publicly traded on NASDAQ: IMMR

  • Revenue: Approx. $23.8 million in 2004

    • Revenue share from SBIR/STTR grants & contracts: approx. 4 percent

    • Revenue share from sales, licensing, & retained earnings: 96 percent

  • Number of Employees: 141

  • Patent Portfolio: Over 550 issued or pending patents, U.S. and foreign

  • SIC: Primary SIC: 3577, Computer Peripheral Equipment

    35779907, Manufacture Input/output Equipment, Computer

    Secondary SIC: 7374, Data Processing and Preparation

    73740000, Data Processing and Preparation, Computer

  • Technology Focus: Touch-feedback technologies

  • Application Areas: Computer peripherals, medical training systems, video and arcade games, touch-screens, automotive controls, 3-D modeling, and other

  • Funding Sources: Licensing fees, product sales, contracts, stock issue, commercial loans, federal government grants, and reinvestment of retained earnings

  • Number of SBIR grants:

    • From NSF: 10 (4 Phase I, 3 Phase II, and 3 Phase IIB)

    • From other agencies: 33 (20 Phase I and 13 Phase II)

areas new for Immersion. In the case of Virtual Technologies, the acquisition brought in a complementary technology.

THE TECHNOLOGY AND ITS USE

Of our five senses, the sense of touch differs from the others in that “it requires action to trigger perception.” Development of a technology to sense touch draws on the disciplines of mechanical and electrical engineering, computer science, modeling of anatomy and physiology, and haptic content design. The technology uses extensive computer power to bring the sense of touch to many kinds of computer-based applications, making them more compelling or more informative processes.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

As a company publication puts it, “At last, the world inside your computer can take on the physical characteristics of the world around you…. Tactile feedback makes software programs more intuitive.”

The technology was brought to life for the interviewer by a series of demonstrations. The first demonstration was of a medical training simulator that teaches and reinforces the skills doctors need to perform a colonoscopy. Low grunts from “the patient” informed the performer that a small correction in technique was needed for patient comfort. “Stop, you are really hurting me!” informed the performer in no uncertain terms that her technique was in need of substantial improvement.

Immersion has developed five main AccuTouch® platforms for helping to teach medical professionals. The five platforms teach skills needed for endoscopy, endovascular, hysteroscopy, laparoscopy, and vascular access—all minimally invasive procedures.

The next demonstration was of a gaming application. The weight of a ball on the end of a string was “felt” to swing in different directions in response to manipulating a joystick. The technology is used also to enhance the computer feedback experience when using a mouse or other peripheral computer controllers for PC gaming systems, arcade games, and theme park attractions, as well as for other PC uses.

A third demonstration was of a “haptic interface control knob” to provide human-machine touch interface on an automobile dash to help manage the growing number of feedbacks from navigational, safety, convenience, and other systems. The purpose is to lessen the risk of overloading the driver.

A fourth demonstration was of Immersion’s “Vibe-Tonz” system for mobile phones. The system expands the touch sensations for wireless communications by providing vibrotactile accompaniment to ringtones, silent caller ID, mobile gaming haptics and many other tactile features.

THE ROLE OF SBIR IN COMPANY FUNDING

Though the initial funding of Immersion Corporation was through private equity, the company applied for and received its first SBIR grant in its second year, 1994. In addition, the acquired companies, HT Medical and Virtual Technologies, had received SBIR grants prior to their acquisition by Immersion, and HT Medical had also received a grant from the Advanced Technology Program (ATP) that was nearing completion at the time Immersion acquired the company. All totaled, Immersion and its acquired companies have received 24 Phase I SBIR grants and 19 Phase II (including 3 Phase IIB) grants, summing to approximately $10.6 million. SBIR funding agencies include NIH, DoE, DoD, Navy, Army, and NSF. Table App-D-2 summarizes the company’s SBIR and STTR grants in number and amount.

According to Mr. Ullrich, SBIR grants gave the company the ability to fur-

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

TABLE App-D-2 Immersion Corporation: SBIR/STTR Grants from NSF and Other Agencies

NSF Grants

Number

Amount ($)

Other Agency Grants

Number

Amount ($)

Total Number

Total Amount ($)

SBIR Phase I

4

400,000

SBIR Phase I

20

~1,400,000

24

~1,800,000

SBIR Phase IIa

3

1,300,000

SBIR Phase IIa

13

6,600,000

16

7,900,000

SBIR Phase IIB/Enhancements

3

850,000

SBIR Phase IIB/Enhancements

0

0

3

850,000

STTR Phase I

0

0

STTR Phase I

3

~200,000

3

~200,000

STTR Phase II

0

0

STTR Phase II

2

1,250,000

2

1,250,000

STTR Phase IIB/Enhancements

0

0

STTR Phase IIB/Enhancements

0

0

0

 

Totals

10

2,550,000

 

38

9,450,000

48

12,000,000

aExludes Phase IIB/Enhancement awards which are listed separately.

SOURCE: Immersion Corporation.

ther develop its intellectual property and to help to grow its intellectual property portfolio, which is the very core of the company’s commercial success. The company has leveraged its government funding by investment funding from private sources in the amount of $12.7 million. The company attributes approximately $33 million in revenue to products directly derived from Phase II SBIR research projects, including licensing, direct sales of product, and product sales due to licensees. However, due to the company’s licensing model, third-party revenues and tertiary economic activity, which are very significant, are not tracked directly by Immersion.

The company now receives only a small fraction of its annual revenue from SBIR/STTR funding, with the percentage ranging variously between 4 percent and 9 percent from 2001 to 2004. Its objectives for rapid commercialization growth are expected to reduce this percentage to an even lower level in the near future.

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

From its beginning, Immersion’s prime business strategy has been to develop intellectual property in the field of touch sense and to license it. In addition, the company performs limited manufacturing operations in its 47,000 sq. foot facility in San Jose and in Gaithersburg, and arranges for some contract manufacturing. But far and away, the company’s wealth generation depends on its ever-growing portfolio of patents which it licenses to others. At the time of this interview, the company had more than 270 patents issued in the United States and another 280 pending in the United States and abroad.

Important to identifying and developing relationships with new licensing partners is the company’s participation in trade shows and conferences, and its

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

ongoing interactions with industry associations and teaching universities. The company employs a business development specialist in each of its core business areas to cultivate these contacts.

Because direct sales for Immersion’s technologies are derived from the much larger markets into which its licensees typically sell, estimating ultimate market size is considered “complicated” for Immersion, and it takes a more narrow view. For example, Immersion markets its cell phone vibration technology to a limited number of cell phone OEMs, and those OEMs in turn market to millions of customers. Estimating the larger consumer markets is not Immersion’s focus.

Potential benefits of the technology include boosting the productivity of software use; enhanced online shopping experiences; enhanced entertainment from computer-based games; improved skills of medical professionals resulting, in turn, in improved outcomes for patients; increased automotive safety due to reduced visual distractions to drivers; and savings to industry through the ability to experience prototypes “first hand,” but virtually, before building costly physical prototypes, and the ability to capture 3-D measurements from physical objects. In addition, visually impaired computer users may benefit from the tactile feedback of the mouse, keyboard, or touch-screen.

VIEWS ON THE SBIR PROGRAM AND PROCESSES

Mr. Ullrich made several observations about the SBIR program and its processes that may serve to improve the program. These are summarized as follows:

Difference in Agency Program Intent Helpful to Companies

Mr. Ullrich thought it was clear that there is “a difference in intent” among the various SBIR programs. In particular, DoD is focused on solutions to well-specified problems, while NSF and NIH are more interested in basic technology development that has commercial potential. This distinction is helpful to companies who may wish to develop technologies under both sets of condition. Given the need to respond to fast developing commercial markets, Mr. Ullrich finds the openness and flexibility of a program to accommodate where a company needs to go to find market acceptance to be a big advantage.

SBIR Application Process

According to Mr. Ullrich, there are only minor differences among the agencies in their proposal application processes, and these differences do not pose a major concern in terms of proposal logistics. At the same time, he noted that the last time the company proposed to NIH, there was no electronic submission process, and he expressed the hope that this lack has been remedied.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
SBIR Proposal Review Process

Mr. Ullrich has found the review process in support of the various agencies’ SBIR grant selection to be “tough but fair.” He has found the NSF review to be “much more academic” than the others. Overall, he sees no need for change in the review process.

Turning more exclusively to the NSF’s SBIR program, Mr. Ullrich offered the following comments:

Timing Issue—Funding Cycle Too Long for Software Providers

According to Mr. Ullrich, the biggest drawback in NSF’s SBIR program is the two deadlines per year, with six months between application and grant and 18 months to Phase II grants. This can be too slow for a software developer.

Timing Issue—Funding Gap

Mr. Ullrich pointed to an associated gap in funding that arises in the NSF program, which he thought would be a real hardship for start-up companies that had not yet developed any sales to sustain them in the interval. He pointed to the Fast Track program at NIH and DoD as being very good ideas. At the some time, he noted that having to develop both Phase I and Phase II proposals at once entails a huge investment of time for an all or nothing outcome. He suggested that providing a supplement—as he recalled some parts of DoD do—to close the funding gap would likely be a preferable approach from the company’s perspective.

Phase IIB Matching Funds Requirement

For Immersion, NSF’s Phase IIB matching requirement of “cash in the bank” was an easy test to meet—once the company had partners. At the same time, he found the associated review awkward in one respect: the company was required to take its business partner (the investor) to a panel review at NSF. The problem was that the company was required to discuss certain financial issues in front of its investor that it would have preferred to have discussed with NSF in private. Furthermore, it found the need to insist that the investor attend the meeting to be cumbersome and, in its opinion, unnecessary.

Commercialization Assistance

The company participated earlier in the Dawnbreaker Commercialization Assistance Program, and found that “it made sense.” However, given the company’s current level of business experience, Mr. Ullrich does not think the company would wish to participate again, and is glad participation is optional. Currently,

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

the company is participating in the Foresight Commercialization Assistance Program for the first time and is “seeing if it will help.”

SUMMARY

This case study describes how SBIR grants helped a young company develop a large intellectual property portfolio centered on adding the sense of touch to diverse computer applications, and how the company grew the business over its first decade to approximately 141 employees and $24 million in annual revenue. It illustrates how government funding can be used by a university spin-off to leverage funding from private sources to achieve faster growth, eventually essentially eliminating the need for government R&D support. The case also illustrates how a basic idea—adding the sense of touch to computer applications—can be used to enhance entertainment experiences, increase productivity of computer use, train doctors, and more. Immersion’s technology was inspired by a NASA system, but its growth centers on its embodiment in consumer products. The case provides a number of suggestions for improving the SBIR program.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

ISCA Technology, Inc5

THE COMPANY

ISCA was founded in 1996 by Dr. Agenor Mafra-Neto, an entomologist performing basic research at the University of California-Riverside on pheromones, chemical substances produced by, in this case, insects that stimulate behavioral responses in other insects of the same species. From his background in basic research, Dr. Mafra-Neto took on the challenge of applying this knowledge to real-world applications. He contacted growers back in his native Brazil who were very supportive of putting his ideas for pest control into practice. His contacts wired up-front financing to cover a contract for pest control traps, and ISCA was born.

For the next two years, the company’s principal business was export of pest control traps to Brazil. Then in January 1999, the company was caught up in a financial crisis that was a result both of the devaluation of the Real, the Brazilian currency, and the default by a customer on a large order of ISCA product. During the months that followed, the company was in severe financial distress, and Dr. Mafra-Neto was unsure of his company’s ability to survive. It was with the help of an SBIR grant that he was able to restructure and reshape the company to provide more advanced product lines targeted at new domestic and foreign markets.

From its new start, the company has grown to 12 employees and annual revenue of $2 million. The company’s offices and facilities are located in an industrial park in Riverside, CA, and occupy a combined area of approximately 8,500 square feet. The staff is a multidisciplinary team of specialized researchers, including synthetic organic chemists, engineers, entomologists, and information technologists.

THE TECHNOLOGIES AND THEIR USES

ISCA synthesizes and analyses sex pheromones for a variety of insects. These pheromones are species specific, occur in nature, are environmentally friendly, and do not result in the development of insecticide resistance by the pest. These properties make them an ideal alternative to insecticides for pest management.

The insect’s response to pheromones and other attractants is often quantified through the use of electroantennograms (EAG), which measure the neural

5

The following informational sources informed the case study: interviews conducted at the company’s headquarters in Riverside, CA, with Dr. Agenor Mafra-Neto, President, Dr. Reginald Coler, Vice President, and Mr. Annlok Yap, Business and Finance Director; the company Web site: <http://www.iscatech.com>; company product brochures; and a recent Dun & Bradstreet Company Profile Report.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

ISCA TECHNOLOGY, INC.: COMPANY FACTS AT A GLANCE

  • Address: 2060 Chicago Ave., Suite C2, Riverside, CA 92507-2347

  • Telephone: 951-686-5008

  • Year Started: 1996; restructured in 1999

  • Ownership: privately held

  • Revenue: Approx. $2.4 million in 2004

    • Revenue share from SBIR/STTR and other government grants: approx. 40 percent

    • Revenue share from sale of product: approx. 60 percent

  • Number of Employees: 12

  • SIC: Primary SIC: 0721 Crop Planting, Cultivating, and Protecting

    2879 Insecticides and Agricultural Chemicals, NEC

    Secondary SIC: N/A

  • Technology Focus: Pest management tools and solutions

  • Application Areas: Insect semiochemicals (pheromones and kairomones, i.e., naturally occurring compounds that affect behavior of an organism); attractants and monitoring traps; pheromone synthesis and analysis; pheromone delivery and dispensing systems; pest management information systems; automated insect identification and field actuation devices; contract entomological R&D; insect rearing and bio-assays

  • Funding Sources: Product sales domestic and foreign, contracts, federal government grants, and a small amount of licensing revenue

  • Number of SBIR Grants:

    • From NSF: 1 Phase I, 1 Phase II, and 1 Phase IIB

    • From other agencies: 6 Phase I and 3 Phase II

activity originating from the insect’s antenna. In addition to EAGs, biological assays are also used to determine a variety of performance metrics, such as the optimal pheromone release method and the optimal pheromone trap design and placement. ISCA then develops pheromone delivery and dispensing systems and monitoring traps, and integrates the traps with data collection systems, including automated sensors to give pest counts and GPS/GIS analytical tools that are internet accessible to give pest locations.6

The results of monitoring provide timely information about the type, num-

6

GPS refers to Global Positioning System, which relies on a system of satellites orbiting the earth to provide precise location and navigation information. GIS is a technology that is used to view and analyze data from a geographic perspective. Looking at the distribution of features on a map can help reveal emerging patterns. The combination of GPS/GIS is an important component of the company’s overall information system framework.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

ber, and location of pests captured in time to predict pest population densities, identify alarm situations, and deliver limited targeted treatments of pheromones to disrupt mating patterns. The advent of ISCA’s pest information management system, equipped with smart traps and wireless communication puts an end to hand counting and the all-too-familiar-to-counters tangled balls of deteriorating insects. The resulting information enables a timely response that avoids insect proliferation throughout a field or larger area and reduces the need for blanket applications of insecticides. Although these technologies individually are not new to the world, their application in the area of integrated pest management has broken new ground.

The company has lines of pheromones, attractants, and repellents to address agricultural pests, including the boll weevil, carob moth, European corn borer, corn earworm, Mediterranean fruit fly, tomato fruit borer, olive fruit fly, peachtree borer, pecan nut casebearer, potato tuber moth, tobacco budworm, and many others. Additionally, ISCA has a product line designed for urban pests, such as the cockroach, housefly, yellow jacket wasp, and mosquito. One of ISCA’s most recent lure technologies is the development of “SPLAT™” (Specialized Pheromone & Lure Application Technology), a sprayable matrix that dispenses attractants over an extended time interval substantially greater than that provided by traditional dispensing technologies.

Information technology comprises a critical component of ISCA’s approach to pest management. The information technology features modular scalability and GPS/GIS capability. At its core is Moritor, an integrated and automated Internet accessible monitoring system.

In support of its R&D, ISCA operates insect rearing chambers, testing rooms, wind tunnels, and olfactometers. It uses an artificial blood membrane system to maintain its mosquito colonies. The company tests its tools and solutions through rigorous field tests as well as by feedback from user groups.

THE ROLE OF SBIR IN COMPANY FUNDING

According to the company founder and president, Dr. Mafra-Neto, the SBIR program was essential to survival of the company after it hit a major financial setback in its third year of operation. He learned about the SBIR program by reviewing U.S. Department of Agriculture’s SBIR proposals during his days in the university. He reasoned that if the company were to get an SBIR grant, it could use the research funding to improve its approach to pest control in terms of the chemicals produced, the lure and trap design and placement, and, eventually, data collection and analysis.

NSF put out a call for sensors. The company responded with a proposal to develop an Internet accessible pest monitoring system with automated traps that would count insects. It was subsequently granted SBIR Phase I and Phase II grants, including a Phase IIB supplement. At NSF, there was interest in bringing

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

TABLE App-D-3 ISCA Technology, Inc.: SBIR/STTR Grants from NSF and Other Agencies

NSF Grants

Number

Amount ($)

Other Agency Grants

Number

Amount ($)

Total Number

Total Amount ($)

SBIR Phase I

1

100,000

SBIR Phase I

6

560,000

7

660,000

SBIR Phase IIa

1

499,700

SBIR Phase IIa

3

1,756,000

4

2,255,700

SBIR Phase IIB/Enhancements

1

250,000

SBIR Phase IIB/Enhancements

0

0

1

250,000

STTR Phase I

0

0

STTR Phase I

0

0

0

0

STTR Phase II

0

0

STTR Phase II

0

0

0

0

STTR Phase IIB/Enhancements

0

0

STTR Phase IIB/Enhancements

0

0

0

0

Totals

3

849,700

 

9

2,316,000

12

3,165,700

aExludes Phase IIB/Enhancement awards which are listed separately.

SOURCE: ISCA Technology, Inc.

innovation to a field not known for its use of technology. “The NSF SBIR gave us lots of prestige; it gave us credibility,” said Dr. Mafra-Neto.

ISCA has received a total of 7 Phase I SBIR grants, 4 Phase II grants, and 1 Phase IIB supplemental grant. It has received SBIR grants from NSF, USDA, DoD, and NIH. The amount the company has received in SBIR grants since 1999 totals a little more than $3 million. Table App-D-3 summarizes the company’s SBIR/STTR grants in number and amount.

According to Dr. Mafra-Neto, the receipt of additional SBIR grants in the future is expected to be important to the company as a means of continuing the innovations necessary to maintain its technical base.

In addition to its SBIR grants, the company received a grant from the Advanced Technology Program, for the period 2002 to 2005. The grant supports the integration of sensor technologies and information technology in a highly automated pest management system.

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

The company’s competitive advantage lies in its innovations to make smarter traps, which are then linked wirelessly to a centralized database located on the Internet. Automated data collection and subsequent analysis and reporting enables targeted pest control strategies. In addition, the company derives strength from its internally developed “SPLAT” technology that extends the time interval needed for effective seasonal control of pests. Sales of SPLAT products are expected to increase dramatically in the near future.

Between 60–70 percent of the company’s sales now are in the domestic U.S.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

market. Remaining sales comprise exports to Brazil, Argentina, Chile, India, and other countries.

The company’s approach to pest monitoring and control offers environmental benefits in terms of reductions in the need for and use of insecticides. These benefits result from early alerts of pest activity, targeted treatments, and use of strategies that do not involve the use of insecticides to disrupt mating patterns. Humans may benefit from reduced insecticides on products they consume, as well as from higher quality products due to less damage to fruit and vegetables from pest outbreaks.

This pest management approach benefits growers who can avoid multiple blanket spraying of fields with insecticides that may cost as much as 10 times more for pest control than ISCA’s method. Avoidance of pest outbreaks may also increase growers’ yield and quality of produce.

The recent development of smart traps that automatically count mosquitoes, together with the company’s pest management information system, may also offer important health benefits by providing an early alert of threats of possible outbreaks of mosquito-borne disease. The widespread use of the system could enable a near instantaneous warning of threatening trends and activities.

VIEWS ON THE SBIR PROGRAM AND PROCESSES

“The SBIR program has allowed us to get where we are today,” said Dr. Mafra-Neto, emphasizing the importance he places on the program. He went on to make the following several observations about the program and its processes, some of which focused on the NSF program.

Reporting Requirements

While noting that he did not particularly like reporting requirements, Dr. Mafra-Neto acknowledged that they forced the company to stay on track. No specific need for change was noted.

Financing Gap

Dr. Mafra-Neto spoke of the difficulties posed by gaps in financing between Phase I and Phase II funding, noting that other companies have died during the gap. “The gap creates uncertainty and breaks the research cycle,” he noted. A mechanism is needed to bridge this gap in those agency programs, which have not already found a solution. He pointed to an approach used by the Army’s SBIR program as an example of a workable bridge.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
Resubmittal of Phase II Proposals and Appeal of Funding Decisions

ISCA interviewees were of the opinion that NIH allows submittal of Phase II proposals up to three times, while NSF allows only a single submittal. Similarly, the interviewees believed that NSF does not allow appeals of its SBIR funding decisions. “Often there is a small issue that we could quickly and easily fix if only we were given the chance,” said Dr. Mafra-Neto, noting that “Reviewer critiques can vary substantially.”

Value of Keeping Phase I Grants as Prerequisite to Phase II

Dr. Mafra-Neto stated emphatically that Phase II grants are critically important and should be continued largely as they exist today. The Phase I grants allow companies to test ideas; they may reveal multiple solutions; they may give companies early, though typically limited, insight into markets. “Phase I grants represent a good investment of public funding,” he said.

Possibly a Premature Emphasis on Venture Capital Funding

Dr. Mafra-Neto expressed a concern that NSF may be pushing companies to attempt to obtain venture capital funding too early in the innovation cycle. In the case of ISCA’s approach to show matching funds needed to obtain an NSF Phase IIB SBIR grant, he said the company used ATP funding, and, alternatively, could have used sales revenue. However, had the company been without existing sales and without an ATP grant, he thought that it would have been too early for his company to have attempted to obtain venture capital funding, making it very difficult to meet the Phase IIB requirement. Thus, the comment reflected an impression and a concern for the possible plight of other companies rather than the actual experience of ISCA.

Value of Commercialization Assistance

“It is very useful to train scientists to have business points of view,” said Dr. Mafra-Neto, in commenting on his company’s participation in both the Dawnbreaker Commercialization Assistance Program and the Foresight Program. At the same time, he commented that he would like to see participation continue to be optional, particularly for companies that have established a degree of business acumen.

Observation About NSF’s SBIR Program Manager System

In the opinion of Dr. Mafra-Neto, NSF’s program manager system is good. “The program manager becomes involved with the grantee. He or she can put

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

you in touch with other sources to help meet your special needs. For example, we were put in touch with Iguana Robotics.”

SUMMARY

This case study illustrates how SBIR grants helped a young company survive following the collapse of export sales several years after start-up. It further shows how SBIR-funded research brought needed innovation to the important but largely static field of pest monitoring and control. The development of better lures and smarter traps integrated with advanced communication tools is effectively cutting the grower’s use of insecticides, and thus reducing the unwanted effects on insects (i.e., increasing their resistance to insecticides and impacting nontargeted organisms), lowering pollution, improving the quality of fruits and vegetables, and providing potential health benefits. The case also provides valuable company observations and opinions about the SBIR program and how to improve it.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

Language Weaver7

THE COMPANY

Like a newly born gazelle, Language Weaver found its legs early. In two years it has developed a fully functional commercial software product from a novel, statistics-based translation technology brought to a research prototype by the company founders, professors and researchers in the University of Southern California’s Information Sciences Institute. Of course, it should not be overlooked that approximately 20 person-years of university research, heavily funded by government agencies, were critical to establishing the scientific and technical underpinnings of Language Weaver’s technology. Language Weaver gained exclusive licenses to past and future patents filed by the university in the field.

LANGUAGEWEAVER: COMPANY FACTS AT A GLANCE

  • Address: 4640 Admiralty Way, Suite 1210, Marina del Rey, CA 90292

  • Telephone: 310-437-7300

  • Year Started: 2002

  • Ownership: privately held

  • Revenue:

    • Revenue share from government grants: approx. 60 percent

    • Revenue share from licensing fees: approx. 40 percent

  • Number of Employees: 35

  • Technology Focus: Statistically based automated machine language translation

  • Application Areas: Language translation of documents, newscasts, and other source materials for defense and commercial purposes. Application languages include Arabic, Farsi, Somali, Hindi, Chinese, French, and Spanish

  • Funding Sources: Federal government grants, venture capital, and licensing revenue

  • Number of SBIR grants:

    • From NSF: 3

    • From other agencies: 1

7

The following informational sources informed the case study: an interview conducted at the company’s headquarters in Marina del Rey, CA, with Mr. William Wong, Director of Technology Transfer; the company Web site: <http://www.languageweaver.com>; company brochures; two articles: “Automated Translation Using Statistical Methods—A Technology that supports communication in Hindi and other Asian languages,” Mutilingual Computing & Technology, Vol. 16, Issue 2, and “Breaking the Language Barrier,” Red Herring, 02/28/05; and a recent Company Commercialization Report to the Department of Defense SBIR Program.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

With a conception date of November 27, 2001, the company’s annual revenue reached several million dollars in 2004, in a market whose potential is estimated in the billions. Having a technology that rather unexpectedly turned out to be much needed at just the right time is paying off.

The company founders are still professors at the university. The company now has about 35 employees, many of them attracted from the university’s Information Sciences Institute. The company is headquartered in an office building with a grand view overlooking a marina just west of downtown Los Angeles.

The company’s first funding came from NSF grants. “When we were trying to start the company,” related Mr. Wong, “it was a little before 9/11, and no one cared about languages. There were no Senate hearings about languages. Then 9/11 happened, and at the time we had already submitted a proposal to NSF. But we didn’t hear back until November, and by then the NSF was able to bootstrap us to get us working quickly, moving code from the university to the company. … It was after the SBIR grant that everything happened. We started getting government interest as it became apparent that we had something interesting. But we would not have been positioned to move quickly to respond to the need if it hadn’t been for that first small amount of NSF funding and the confirmation of the technology.” Subsequently the company was able to obtain venture capital funding.

“What we are trying to do,” explained Mr. Wong, “is to create the best machine translation in the world, with the highest quality and readability. Our best selling system right now is Arabic to English —to the government. We have customers and we have partners.”

THE TECHNOLOGY AND ITS USE

The state of the practice in commercial machine translation is rule-based, e.g., noun before verb. But 30 years of working with rules has reportedly shown that the approach does not do well in handling special cases. In contrast, Language Weaver’s statistical learning approach to machine translation is designed to learn the appropriate linguistic context for distinguishing and handling words with multiple meanings. This is the kind of problem that confounds rule-based systems because it is impossible to capture all the necessary cases in rules. For example, the English word, “bank” may need to be translated differently in each of the following: “put the money in the bank;” “you can bank on it;” and “paddle the canoe near the bank.”

The machine-based software uses computational algorithms and probability statistics to learn from existing translated parallel texts, analyze words and word groupings, and build translation parameters that will provide the highest statistical probability of providing a correct translation. The development of translation software for a given language entails performance of two analyses: First, a bilingual text analysis is performed using a corpus of text and statistical analysis

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

to learn associations. For example, a bilingual corpus for Spanish/English may be found at Microsoft’s Web site which gives the same material in both Spanish and in English. From such existing one-to-one translations, the system learns. A translation model is built from the resulting analysis. Second, a great deal of monolingual text is fed into it to increase translation fluency. The process is akin to a computer chess game, whereby the computer is playing chess with itself trying to find the best move, or, in this case, the best translation. The approach requires a lot of computing, but fortunately substantial computing power is available at a reasonable cost.

“Basically, we consume this text corpus. We learn from it and develop the parameters which will be used by the runtime module we call the ‘decoder.’ What we license to the customer is the parameters and the decoder,” related Mr. Wong, describing Language Weaver’s approach.

What about languages for which there is not much of an existing corpus of digital translations available? Language Weaver’s first two contracts involved Somali and Hindi—both of them “electronically low density languages.” In this case, the company had to employ human translators to generate a body of digital text that they could put into the learning system to create the parameters. “We don’t get as high a quality taking this approach,” said Mr. Wong, “but it’s still readable.”

“We have also developed a Chinese translator—for which a lot of existing data exists—but which is difficult because it uses characters instead of letters. And in the case of Arabic, there is a similar difficulty because we are dealing with script. Chinese and Arabic each presented special challenges that we met,” noted Mr. Wong.

“In summary,” explained Mr. Wong, “instead of rule based, our approach is code breaking. We just need a few weeks to create a new language set. We are getting to the point that we can deal with any language, translating it into another language by pressing buttons.”

Mr. Wong brought the technology to life for the interviewer with some graphic depictions of how it can be used for defense applications: “Everyday many hours of potentially important information to U.S. efforts against terrorism are broadcast in Arabic. Our technology is used to provide near simultaneous translation. Similarly, hours of taped interviews with people from different cultures, speaking in a variety of languages, may contain insights and information important for the military effort. Our technology can perform the translations and allow specific questions to be searched.”

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

Language Weaver’s translation system, for example, has been incorporated into media monitoring systems by BBN, Virage, and Z-Micro Systems. These systems can capture an Arabic satellite news broadcast. The audio track containing speech is extracted in 5-second chunks. A speech recognition system does the transcription of the chunks into Arabic text. From there, the media monitoring system sends the Arabic text to the Language Weaver translation system, which translates it into English. “An exciting part of the media monitoring systems is the way they allow an analyst or viewer to track each translated text segment in synch with the broadcast video and audio. As the speaker speaks, the English text chunk is highlighted that corresponds to what the announcer is saying.”

Continuing, Mr. Wong said, “Or imagine that you are searching a house where terrorists have been and you uncover a trove of dirty or degraded documents written in Arabic, or Farsi, or some other language. These documents may contain valuable information. They can be cleaned, scanned, and transcribed using optical character recognition software, and our system can be used quickly to generate translations. These translations can be stored and searches can be performed on key words as needed.”

THE ROLE OF SBIR IN COMPANY FUNDING

The company founders, Dr. Kevin Knight and Dr. Daniel Marcu, were professors at the University of Southern California’s Information Sciences Institute, when they saw business potential in a new approach to machine language translation they had brought to a research prototype stage.8 This awareness came right at the time the Internet bubble was about to burst, but at a time everyone was still excited about technology, allowing the professors to get their foot in the door with venture capitalists. But they couldn’t get funding—perhaps because the venture capitalists were just then realizing that conditions were about to take an unfavorable turn.

Next the professors went to see the Tech Coast Angels, a group of investors who provide seed and early stage capital in Southern California. They were able to present to the group, but they didn’t get money. However, they did get a mentor who worked with the would-be company for about nine months.

Still, during this time, the professors were getting no traction from the commercial sector in terms of investment funding. It was at that point that Daniel Marcu, following something of a whim, decided to see if he could get STTR funding and start the company on that. At the university, he had worked on DARPA and NSF-funded research projects, and he knew from this experience

8

With backgrounds in computer science, mathematics, and linguistics, Drs. Marcu and Knight, were, and are, two of the top researchers in the field of statistical machine translation. The interviewee, William Wong, was a student of Dr. Marcu at the University of Southern California (USC), and joined the company at its inception. Prior to coming to USC, Mr. Wong had worked at Intel. At USC his intention, he said, was to go into computer animation. He took a class from Daniel Marcu on natural language processing, “fell in love with the idea,” and changed his plans.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

TABLE App-D-4 Language Weaver: SBIR/STTR Grants from NSF and Other Agencies

NSF Grants

Number

Amount ($)

Other Agency Grants

Number

Amount ($)

Total Number

Total Amount ($)

SBIR Phase I

1

100,000

SBIR Phase I

1

50,000

2

150,000

SBIR Phase IIa

1

500,000

SBIR Phase IIa

 

 

 

 

SBIR Phase IIB/Enhancements

1

500,000

SBIR Phase IIB/Enhancements

 

 

 

 

STTR Phase I

b

STTR Phase I

 

 

 

 

 

STTR Phase II

 

STTR Phase II

 

 

 

 

 

STTR Phase IIB/Enhancements

 

STTR Phase IIB/Enhancements

 

 

 

 

 

Totals

 

 

 

 

 

 

 

aExludes Phase IIB/Enhancement awards which are listed separately.

bAn STTR Phase I grant was converted to an SBIR Phase I grant.

SOURCE: Language Weaver.

about the NSF STTR grant. He submitted a proposal to NSF and got the STTR grant.

In the words of Mr. Wong, “Getting the STTR grant was a real boon to us, because we were on the verge of saying, ‘This technology is not ready. No one is interested in talking to us. Let’s just shelve it for a while.’ But then came the grant from the National Science Foundation and with it the confirmation and redemption of the technology—an indication that it was useful, or interesting at least.”

“What did that do for us?” Mr. Wong continued. “It wasn’t enough to support more than one person, but it forced us to actually incorporate—that’s one of the rules. The other thing was that it forced us to find a CEO—someone who could drive the formation of a whole company as you see today. And it forced us to spend some time working out the details, including those of us who were volunteering our time. It reinforced that we had something interesting. So basically November 27, 2002 was our conception date, because that is when we got our first STTR. Then we were given a chance to convert the STTR into an SBIR, and we did because the SBIR offered more advantages.9 So the STTR/SBIR from NSF created Language Weaver and what we are today. Without that we would have shelved the technology.”

Language Weaver has received a total of $150,000 in Phase I SBIR grants and $1,500,000 in Phase II grants. It has received SBIR grants from NSF and

9

At the time, research funds were extremely limited. The company found it advantageous to provide the university an ownership share of the company rather than give up the limited STTR research dollars to it.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

the U.S. Army. The amount the company has received in SBIR grants since its founding in 2002 totals $1,150,000. Table App-D-4 summarizes the company’s SBIR/STTR grants in number and amount. In addition to its SBIR grants, the company received a multiyear grant from the Advanced Technology Program, for a large scale syntax-based system, expected to bear fruit several years out.

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

The company is “a core technology house based on licensing its software.” It licenses its product, statistical machine translation software (SMTS) directly to customers, and through partners, such as solution vendors who add multilingual capability to their applications with Language Weaver. Underpinning its ability to license are more than 50 patents pending worldwide on SMTS. These partners are important marketing vehicles. “We have a symbiotic relationship with our partners,” Mr. Wong explained. “We promote our products and our partners’ product lines that contain our technology; our partners do the same thing.”

In its first two years, the company focused on heavy government funding. Grants and development contracts comprising 80–90 percent of company revenue were the company’s “life’s blood.” In 2004, the company received more revenue from licensing, allowing it to get the government share down to 60–70 percent of revenues. According to Mr. Wong, the goal in 2005 is to cut the share of government grants to less than half of company revenue, with the majority coming from licensing.

The company is “not hanging onto research,” explained Mr. Wong. “Yes, we will continue to have researchers internally, but the growth vehicle is the market now. We are sticking with the company’s core technology and then building supporting technologies around it to make the core more useful.” An additional avenue for research support, reminded Mr. Wong, is the fact that the company will continue to benefit from research advances made at the University of Southern California through Language Weaver’s rights to future discoveries.

Mr. Wong elaborated on the ongoing relationship between Language Weaver and the University. “Whatever they are working on that improves the quality of automated language translation, Language Weaver will gain the rights to. This arrangement used to be unusual, especially unusual for research university institutions because they are not focused on commercial prospects. We were probably the poster child—actually the second one—to break this path where we not only receive current rights but also future rights (for five years) from the university. Because the university shares in the company’s equity, and we are a healthy company, the university benefits from our success. In addition, Language Weaver hires a steady stream of graduates coming out of the university program.”

Mr. Wong also provided perspective about the company’s view of and use of venture capital and external business management, explaining, “Early on we made the decision that we wouldn’t be control freaks, and that we couldn’t handle

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

all of the management aspects. We found our CEO—Bryce Benjamin—through the Tech Coast Angels. From then on we just wanted reasonable ownership of the company for the amount of money they were giving us. We decided not to worry about the fact that we are giving up shares. Rather we would worry about how much value is being added. We did not have to give up majority ownership in order to attract funding. We stayed away from people who didn’t see the future of the technology, and just seemed out to get majority ownership. To develop a beneficial relationship with venture capitalists, you need to be in that phase when you are moving towards having customers, but need to grow more; in this phase venture capital can help and investors can see potential.”

Language Weaver’s technology offers societal benefits in several ways: First, it reportedly provides a significantly higher rate of accuracy in translation than counterpart rule-based machine translations, providing customers more value. Second, it is able to provide translation systems for languages for which there is a shortage of available translators and for which there is considerable demand for translations, particularly for defense purposes. Third, it can be a more cost-effective solution for translation of large volumes of information than human translators. Fourth, the technology may offer a faster means to obtain needed translations by its ability to process large volumes of data quickly. For example, it reportedly can process in one minute what a human translator would take several days to produce.

VIEWS ABOUT THE SBIR PROGRAM AND ITS PROCESSES

Because NSF SBIR grants make up most of Language Weaver’s funding received through the SBIR program, Mr. Wong’s views on the SBIR program, which follow, mainly reflect NSF’s program.

Commercialization Assistance Program

Language Weaver chose not to participate because when the opportunity arose, the company had just brought in business management and a salesperson with an extensive directory of contacts. The company found the optional nature of participation to its liking.

NSF’s Emphasis on Commercialization

“The NSF provides a lot of encouragement to companies to look more at the commercialization side,” stated Mr. Wong. “You’ve got to find your marketing or sales guy; you’ve got to find your customers.” They push you to ask “What do your customers really want.”

Assessing this focus, Mr. Wong stated, “I think it was about the right emphasis in our case, being in the software industry. I can see how it might be too fast

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

for some technology areas such as materials, manufacturing, and chemicals, or pharmaceuticals. The time required to commercialize a technology is definitely industry dependent. In the software area, minimizing the time to market is important. We have to worry that someone in some other place will copy our technology—even though at this point there are only a handful of people who understand statistical machine translation, and they are a very tight group, making it less easy to copy. In any case, speed is of the essence.”

NSF’s Phase IIB Matching Funds Requirement

Mr. Wong noted, “NSF’s Phase IIB was very good; it worked well for Language Weaver.” However, he expressed concern that other start-up companies not able to move as fast into commercialization would find it very difficult to meet the matching funds condition of Phase IIB. He explained that getting a Phase I, Phase II, and Phase IIB is not enough to enable a start-up company to bring in a marketing person and is not enough to allow a CEO like Mr. Benjamin to build a business. A start-up company must have already found additional funding in order to position itself to do what is being asked to do at the Phase IIB stage. Thus, the implied sequence of the SBIR phases feeding directly into one another as a tool to launch a business is most cases would be quite problematic. A company will need to go out and find more funding sources and partners very early on. In the words of Mr. Wong, “We were lucky that we were able to do that.”

In response to a question about whether the company was able to use its government defense-related contracts as match for its Phase IIB grant, Mr. Wong responded as follows: “We needed commercial contracts. We could not use our DoD contracts as match. We used venture capital funding as our match. We had to show that we had the money in the bank. It meant actually showing bank receipts.

NSF’s Flexibility and Empowerment of Program Managers

“NSF’s flexibility was extremely helpful to us,” noted Mr. Wong, explaining that because the company was just getting started, it needed to make some changes in its research plan in Phase II after getting underway. He observed that NSF empowers its program managers and provides them enough leeway to make decisions that allow changes from the original research plan if it seems warranted—provided the company reports on it and explains why it was beneficial and the results.

Another point Mr. Wong made about the advantages of NSF’s flexibility was that the NSF allowed Language Weaver to go at an accelerated pace and finish early—without having to turn back money. The ability to accelerate research was reportedly very important to meeting the rapidly developing market demand for a better machine translation system.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
Financing Gap

“A lot of us were willing to work for free during that early time and that helped relieve the financial stress. But I can see how surviving during the start-up phase would be a hardship for some companies,” said Mr. Wong.

Opinion about Phase I Grants

In the words of Mr. Wong, “I think requiring Phase I is a good idea. Always a good idea! You don’t know if an idea is even interesting to someone and if you can get it together in the beginning. So I totally see why we need to have the Phase I—especially when the follow-on phases are so much bigger. Of course it would be nice to get more money up front, but the Phase I is a way for the government to take a manageable risk.”

NSF Proposal Review Process

In Mr. Wong’s opinion, the process seemed fair and the quality of reviews seemed good. “It seemed more academic in nature,” he said, “but that was good, because it reinforced that we had something new and interesting. And as a new company we needed that third party affirmation that our ideas were worthwhile. Because we received the NSF SBIR, and the affirmation it gave us, we were able to do follow-on work.”

He noted that there seemed more comments on the business side at the Phase II review. And, the grading seemed pass/no pass. “Is the project sound; is there an inkling of business sense?”

“At the Phase IIB review stage, the emphasis in the review was definitely financial; nuts and bolts. The CEO, Mr. Benjamin and others gave a presentation before a panel for Phase IIB. The presentation was very business oriented, addressing why we have potential as a company.”

Idea for “Phase IIC” Grant

“I think commercialization is very hard for people,” said Mr. Wong. “If we hadn’t been able to recruit our CEO from Tech Coast Angels, we would have had the same problems as everyone else. Making available a Phase IIC grant would be very helpful to extend the time to get to market for longer lead time technologies. If everything is looking good through the Phase IIB period, a little more money might make a big difference.”

SUMMARY

This case study illustrates how an NSF SBIR grant was critical to bootstrapping a technology with national security and economic potential out of a univer-

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

sity into use on a fast-track basis. The credibility afforded the technology by the SBIR grant enabled the company to get the management, additional funding, and strategic partners it needed to make a business. Without the NSF SBIR grant, a technology that turned out to be extremely timely would not have been developed in the same time frame. The technology is statistical machine translation that Language Weaver has applied to translating Arabic, Farsi, Chinese, and other languages. At this time, it is being used mainly for military-related purposes such as to create translations of Arabic broadcasts. From its founding in 2002, Language Weaver has moved from being almost entirely dependent on government grants to receiving the majority of its revenue from licensing fees. The case illustrates the speed capabilities of a software company as well as the speed imperatives that often characterize this field. The interview provided many observations that may help improve the SBIR program.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

MER Corporation10

THE COMPANY

MER (Materials and Electrochemical Research) Corporation was created 20 years ago by two former employees of Arco Chemical Company in an R&D spinoff from Arco. The founders continue to own and operate the firm. Incorporated in Arizona and located in Tucson, MER now has about 75 employees. It operates as an engineering services company.

The firm seeks a leadership position in developing advanced and exotic materials. It has received a number of prestigious grants in recognition of its technical capabilities, including multiple R&D 100 grants—for its work in SiC fibers, VLS SiC whiskers, metal powders, and titanium extraction. It also has received grants from the Arizona Innovation Network in recognition of its prowess as an innovator. Moreover, it has received from the Small Business Administration (SBA) several “Tibbetts Grants,” named for Roland Tibbetts, a former National Science Foundation (NSF) employee who is acknowledged as “the father of the SBIR program.” The stated focus of the SBA in selecting firms to receive the Tibbetts Grant is on the economic impact of the technological innovation, business achievement and effective collaborations, and demonstrated state and regional impact.

THE TECHNOLOGY AND ITS USE

According to its website, “Researching and developing new materials is the backbone of MER.” Its specialty research areas include ceramic composites, diamond and other specialty coatings, solid free-form fabrication, and custom development and evaluation of batteries. Using SBIR grants, MER has developed technologies in advanced composites, powders, coatings, reinforcements, fullerenes and nanotubes, near net shape metals and alloys, and energy conversion systems.

One current focus of the company is on commercialization through military channels of prototypes of its rapid manufacturing near net shape processing technology. This was the technology featured by MER at the Navy Opportunity Forum, the occasion of the interview in support of this case study. By depositing successive layers of molten metal based on CAD-file designs, a variety of metal shapes—including very complex shapes—can be produced without tooling, without waste of materials, with desirable joining features, and at a cost advantage to machining techniques.

10

This case study was informed by the sources: interview with Dr. Roger Storm, MER Program Manager, conducted at the Navy Opportunity Forum, May 2-4, 2005, Reston, VA; information from the company Web site: <http://www.mercorp.com>; and a recent Dun & Bradstreet Company Profile Report.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

MER CORPORATION: COMPANY FACTS AT A GLANCE

  • Address: 7960 South Kolb Road, Tucson, AZ 85706

  • Telephone: 520-574-1980

  • Year Started: 1985 (Date Incorporated: 1985)

  • Ownership: 100 percent of capital stock owned by the officers

  • Revenue: $7.9 million in a recent year

    • Roughly 60 percent from government sources

    • Roughly 40 percent from engineering services and product sales

  • Number of Employees: 75

  • SIC: Primary SIC 8711 Engineering Services

  • Technology Focus: Electrochemical systems, porous materials, coatings, fullerenes and nanotubes, composites, rapid manufacturing of near net shape metals/alloys, and energy conversion systems

  • Application Areas: Fuel cell based power generators, biomedical applications, products fabricated from advanced ceramic composites, applications of fullerenes and nanotubes, and rapid manufacturing prototyping for military and civilian uses

  • Facilities: Leases 45,000 sq. ft. of state-of-the-art laboratories

  • Funding Sources: Engineering consulting fees, commercial sales, government sales, licensing fees, Federal government grants & contract R&D, and private investment of owners

  • Patent Position: More than a dozen patents granted

  • Number of SBIR grants: 31

    • From NSF: 4

    • From other agencies: 27

THE ROLE OF SBIR AND OTHER GOVERNMENT R&D FUNDING

Beginning early in its history and continuing to the present, the MER Corporation has relied heavily on SBIR grants and government engineering contracts for funding. The firm has also received funding from DARPA and, as part of a joint venture, from the ATP. Today, roughly 60 percent of the company’s funding comes from government sources—mainly from SBIR grants. The remaining approximately 40 percent comes from engineering services and product sales.

The SBIR program has been important to the owners as a means for not losing control of the company. It has allowed the company steadily to improve and advance its R&D capabilities.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

In parallel with its R&D activities, MER seeks new opportunities to commercialize these technologies through strategic alliances, joint ventures, licensing, and by production and sale of product. The firm has developed extensive cooperative arrangements with major universities and international corporations as part of its R&D efforts. Among its affiliate companies are Fullerene International Corporation, LiTech LLC, Tailored Materials Corporation Inc. (TMC), and Frontier Materials Corporation (FMC). Among its research partners are Mitsubishi Corporation and RC Technologies.

Focusing on the firm’s rapid manufacturing prototyping technology, Dr. Storm, MER’s Program Manager interviewed for this case, described the company’s competitive advantage as consisting of the following elements: a) a minimum of waste, b) no need for tooling, c) very specific capability in joining and producing composite structures, and d) a cost advantage primarily in terms of low capital and operating costs. Currently at the prototype stage, the firm faces the challenges of scaling-up and moving into commercial applications. In the process, it looks for value-added opportunities in military and commercial markets.

VIEWS ON THE SBIR PROGRAM AND PROCESSES

Dr. Storm characterized the SBIR program overall as “a good program.” He called out several agency program features as particularly noteworthy. He spoke positively about the Navy’s approach to fostering SBIR Phase III activities. He noted the benefit that certain parts of DoD provide by eliminating the problem of a funding gap between Phase I and Phase II through an option to keep projects going if satisfactory progress is being made.

Phase I Grants as Prerequisite to Phase II

Dr. Storm commented that the current progression from a Phase I feasibility demonstration to a Phase II grant as quite reasonable, and sees no reason to change this arrangement.

Turning to the firm’s experience with NSF’s SBIR program, Dr. Storm noted that an on-going NSF project is “running good…with sensible management from NSF.” He then identified the problems with NSF’s SBIR program:

Impression that NSF’s Proposal Review Process Relies Excessively on University Reviewers who Lack Business Savvy

Based on the firm’s experience in applying to an NSF solicitation for which prominent goals were international competitiveness and cost effectiveness, the firm concluded that a reviewer, quite possibly from a university, failed to grasp the economic significance of forecasted reductions in material cost to be achieved

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

through the proposed R&D project. Two of the reviewers agreed with the premise that the proposed program would dramatically decrease the cost of Ti components and provide a major advantage to U.S. industry that is currently limited by the cost of the Ti components. The third reviewer demonstrated a complete lack of understanding of the central issues. In another cited example, a proposal for low-cost manufacturing of Ti powder was rejected as not qualifying as a manufacturing proposal. Based on its years of experience with manufacturing, the firm felt that it was capable of identifying a manufacturing proposal, and concluded that the reviewer did not understand the manufacturing world. This was taken to imply an academic background. Referencing his many years of experience in writing proposals, Dr. Storm acknowledged that not every proposal should be expected to be funded, but, in the cases cited, he felt strongly that the review was faulty.

No Appeal of Proposal Review Decision

In light of the above cited experiences, Dr. Storm felt that it would be helpful if there were an appeal procedure when the reviewers so clearly split in their opinions.

Rumored NSF “Black List” for Firms Who Have Received “Too Many” Grants

According to Dr. Storm, there is a rumor in the SBIR community that a firm will be “black listed” by NSF if it has received “too many” grants. A problem is that no one knows what number triggers this action, or even if it is true. If it is true, it would be very helpful to companies if this policy could be made explicit and public, so that companies would better know how to interface with the NSF SBIR program. The company would accept an NSF decision to limit its grants per company, but it needs to know what the policy is. The current uncertainty leads to frustration among companies and possibly a waste of time and resources that could be avoided by greater program transparency. (Dr. Storm noted that other agencies do not appear to have a limit on grants, and that the rumor applies only to the NSF program.)

Restriction on the Number of Proposals that can be Submitted in a Year

NSF’s restriction on the number of proposals a given company can submit during a year to four proposals favors the smallest companies that have less competition among staff members and technology areas. The implication is that a business like MER’s with more employees and areas of technology than many other very small businesses is limited in the number of significant ideas for proposals it can identify. He commented that if the goal of NSF is improving our nation’s competitiveness, this restriction is difficult to understand.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
SUMMARY

This case study illustrates the continuing role played by SBIR grants in the research of a grant winning company started 20 years ago. The SBIR program was said to be particularly important to the owners as a means for not losing control of the company. It has allowed the company steadily to improve and advance its R&D capabilities in advanced composites, powders, coatings, reinforcements, nanotubes, manufacturing processes to produce near net shape metals and alloys, and energy conversion systems. In parallel with its R&D activities, MER is commercializing its technologies, primarily through military channels. One current focus of the company is on commercializing its rapid manufacturing near net shape processing technology. The process technology allows a variety of very complex shapes to be produced without tooling, without waste of materials, with desirable joining features, and at a cost advantage to machining techniques. Today, roughly 60 percent of the company’s funding comes from government sources, and the remaining from engineering services and product sales. The case draws on the experience of the company to identify potential problems with the SBIR program

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

MicroStrain, Inc.11

THE COMPANY

While pursuing a graduate degree in mechanical engineering at the University of Vermont, Steve Arms witnessed an incident that led him to his future business. During a horse vaulting gymnastics competition, a friend flipping off the back of a horse injured the anterior cruciate ligaments in both knees when she landed. That set Steve, an avid sportsman himself, wondering about the amount of strain a human knee can take and how to measure that strain. Soon he was making tiny devices called “sensors” in his dorm room to measure biomechanical strain, and soon afterwards he was making money for graduate school by selling sensors around the world—the first a tiny sensor designed for arthroscopic implantation on human knee ligaments.

In 1985, Steve Arms left graduate school to start his company, MicroStrain, Inc. Its business: sensors. “In many ways,” he said, “an excellent time to start a business is when you first leave school and it is easier to take the risk, the opportunity cost is small, and one is used to living on a budget.” He operated the business out of his home at first.

The company is not a university spin-off, but the company has a number of academic collaborators. Among them are the University of Vermont, Carnegie Mellon, the University of Arizona, Penn State, and Dartmouth University.

He located the company in Vermont to be close to family and friends, and to continue to enjoy the excellent quality of life offered by that location. In the longer run, the location has proven positive for high employee retention.

From its initial focus on micro sensors with biomechanical applications, MicroStrain moved into producing micro sensors for a variety of applications. Its sensor networks are in defense applications, security systems, assembly line testing, condition-based maintenance, and in applications that increase the smartness of machines, structures, and materials.

The company has grown to approximately 22 employees, including mechanical and electrical engineers. It occupies 4,200 square feet of industrial space near Burlington, Vermont. Its annual sales revenue was recently reported as $3.0 mil-

11

The following informational sources informed the case study: interview with Mr. Steve Arms, President of MicroStrain, conducted at the Navy Opportunity Forum, May 2–4, 2005, Reston, VA; the company Web site: <http://www.microstrain.com>; company product brochures; a paper, “Power Management for Energy Harvesting Wireless Sensors,” by S. W. Arms, C. P. Townsend, D. L. Churchill, J. H. Galbreath, S. W. Mundell, presented at SPHASE IE International Symposium on Smart Structures and Smart Materials, March 9, 2005, San Diego, CA; a book chapter, “Wireless Sensor Networks: Principles and Applications,” Sensor Technology Handbook, ed.: Jon S. Wilson, pub.: Elsevier Newnes, ISBN: 0-7506-7729-5, Chapter 22, pp. 575–589, 2005; a University of Vermont Alumnus Profile of Mr. Arms; a presentation by Mr. Arms at a DHHS SBIR conference; and a recent Dun & Bradstreet Company Profile Report.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

MICROSTRAIN, INC.: COMPANY FACTS AT A GLANCE

  • Address: 310 Hurricane Lane, Suite 4, Williston, VT 05495-3211

  • Telephone: 802-862-6629

  • Year Started: 1985

  • Ownership: privately held

  • Revenue: Approx. $3.0 million in 2004

    • Revenue share from SBIR/STTR and other government grants: approx. 25 percent

    • Revenue share from sale of product and contract research: approx. 75 percent

  • Number of Employees: 22

    SIC: Primary SIC: 3823 Industrial Instruments for Measurement, Display, and Control of Process Variables, and Related Products

    Secondary SICs:

    3625 Relays and Industrial Controls

    3679 Electronic Components, not elsewhere classified

    3812 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical Systems and Instruments

    3823 8711 Engineering Services

  • Technology Focus: Wireless sensors and sensor networks for monitoring strain, loads, temperature, and orientation

  • Application Areas: Condition-based maintenance; smart machines, smart structures, and smart materials; vibration and acoustic noise testing; sports performance and sports medicine analysis; security systems; assembly line testing

  • Funding Sources: Product sales, contract research, and federal government grants

  • Number of SBIR Grants:

    • From NSF: 3 Phase I, 3 Phase II, and 3 Phase IIB

    • From other agencies: 6 Phase I, 2 Phase II, 1 Phase III

lion in 2004, with revenues growing at about 30 percent per year. Revenues are expected to reach $4.0 million in 2005.

THE TECHNOLOGY AND ITS USES

A “sensor” is a device that detects a change in a physical stimulus, such as sound, electric charge, magnetic flux, optical wave velocity, thermal flux, or mechanical force, and turns it into a signal that can be measured and recorded.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

Often, a given stimulus may be measured by using different physical phenomena, and, hence, detected by different kinds of sensors. The best sensor depends on the application and consideration of a host of other variables.

MicroStrain focuses on producing smarter and smaller sensors, capable of operating in scaleable networks. Its technology goal is to provide networks of smart wireless sensing nodes that can be used to perform testing and evaluation automatically and autonomously in the field and to report resulting data to decision makers in a timely and convenient manner. The data can be used to monitor structural health and maintenance requirements of such things as bridges, roads, trains, dams, buildings, ground vehicles, aircraft, and watercraft. The resulting reports can alert those responsible to problems before they become serious or even turn into disasters. They can eliminate unnecessary maintenance and improve the safety and reliability of transportation and military system infrastructure, while reducing overall costs.

Among the features that determine how useful sensors will be for the type of system monitoring function described above are the degree to which the sensors are integrated into the structures, machinery, and environments they are to monitor; the degree to which the systems are autonomous, i.e., operate on their own with little need for frequent servicing; and the degree to which they provide efficient and effective delivery of sensed information back to users. MicroStrain’s research has focused on improving its technology with respect to each of these performance features.

Another way to look at it is that MicroStrain has addressed barriers that were impeding the wider use of networks of sensors. For example, MicroStrain was one of the first sensor companies to add wireless capability. Wireless technology overcomes the barrier imposed by the long wire bundles that are costly to install, tend to break, have connector failures, and are costly to maintain. A recently passed international standard for wireless sensors (IEEE 802.15-4) is expected to facilitate wider acceptance of wireless networks.

A barrier to the use of wireless sensor networks is the time and cost of changing batteries. MicroStrain is an innovator in making its networks autonomous, without need of battery changes, by pursuing two strategies: First, it has adopted various passive energy harvesting systems to supply power, such as by using piezoelectric materials to convert strain energy from a structure into electrical energy for powering a wireless sensing node, or by harvesting energy from vibrating machinery and rotating structures, or by using solar cells. Second, the company has reduced the need for power consumption by such strategies as using sleep modes for the networks in between data samples.

A recent newsworthy application of MicroStrain’s sensors was to assist the National Park Service move the Liberty Bell into a new museum. The bell has a hairline fracture that extends from its famous larger crack, making the bell quite frail. MicroStrain applied its wireless sensors developed as part of an NSF SBIR grant to detect motion in the crack and fracture as small as 1/100th the width of a

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

human hair. During a lifting operation at the end of the move, the sensors detected shearing motions of about 15 microns (roughly half the width of a human hair) at the visible crack with simultaneous strain activity at the hairline crack’s tip. MicroStrain’s engineers stopped the riggers during this activity, and the sensor readings returned to baseline. Further lifting proceeded very slowly, and no further readings of concern were observed. The bell was protected by this early warning detection system, which saved it by literally splitting hairs.

Another newsworthy application by the company of a sensor network was to the Ben Franklin Bridge which links Philadelphia and Camden, NJ, across the Delaware River. The bridge carries automobile, train, and pedestrian traffic. At issue was the possible need for major and costly structural upgrades to accommodate strains on the bridge from high-speed commuter trains crossing the bridge. MicroStrain placed a wireless network of strain sensors on the tracks of the commuter train to generate the data needed to assess the added strain to the bridge. “For a cost of only about $20,000 for installing the wireless sensor network, millions were saved in unnecessary retrofit costs,” explained Mr. Arms.

In the future, military systems will benefit from the cost-saving information from MicroStrain’s sensor networks. Current development projects include power-harvesting wireless sensors for use aboard Navy ships, and damage-tracking wireless sensors for use on Navy aircraft. Mr. Arms explained that the data collected in this application is expected to result in recognition that the lives of the aircraft can be safely extended, avoiding billions of dollars of replacement costs.

THE ROLE OF SBIR IN COMPANY FUNDING

Early on, SBIR funding played an important role in supporting company research. While in graduate school at the University of Vermont, Mr. Arms was involved in proposal writing. He also had learned of the SBIR program. “Were it not for this,” he said, “the application process may have seemed intimidating.” He tapped Vermont’s EPSCoR12 Phase O grants to leverage his ability to gain Federal SBIR grants. EPSCoR Phase O grants provide about $10,000 per grant. According to Mr. Arms, these Phase O grants helped the company get preliminary data for convincing results and helped it write competitive proposals. The company has leveraged a total of $40,500 in EPSCoR grants to obtain $3.6 million in SBIR funds.

According to Mr. Arms, he found the NSF SBIR program with its “more open topics” particularly helpful in the early stages when the company was building capacity. “The open topics allowed the company to pursue the technical development that best fit its know-how,” he explained. “Now the company is

12

EPSCoR (Experimental Program to Stimulate Competitive Research Program) is aimed currently at 25 states, Puerto Rico and the U.S. Virgin Islands—jurisdictions that have historically received lesser amounts of federal R&D funding.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

TABLE App-D-5 MicroStrain, Inc.: SBIR/STTR Grants from NSF and Other Agencies

NSF Grants

Number

Amount ($)

Other Agency Grants

Number

Amount ($)

Total Number

Total Amount ($)

SBIR Phase I

3

224,800

SBIR Phase I

6

445,800

9

670,600

SBIR Phase IIa

3

1,198,800

SBIR Phase IIa

2

1,349,100

5

2,547,900

SBIR Phase IIB/Enhancements

3

346,900

SBIR Phase III

1

63,000

4

409,900

STTR Phase I

0

0

STTR Phase I

0

 

0

0

STTR Phase II

0

0

STTR Phase II

0

 

0

0

STTR Phase IIB/Enhancements

0

0

STTR Phase IIB/Enhancements

0

 

0

0

Totals

9

1,770,500

9

1,857,900

18

3,628,400

aExludes Phase IIB/Enhancement awards which are listed separately.

SOURCE: MicroStrain, Inc.

better able to respond to the solicitations of the Navy and the other agencies that issue very specific topics.”

The company regards receipt of an SBIR grant as “a strong positive factor that is helpful in seeking other funding,” said Mr. Arms. “It is used not only to fund the development of new products, but as a marketing tool,” he continued, pointing out that the company issues a press release whenever it receives an SBIR grant.

MicroStrain has received a total of 9 Phase I SBIR grants, 5 Phase II grants, 3 Phase IIB supplemental grants, and 1 Phase III grant. It has received SBIR grants from National Science Foundation (NSF), Navy, Army, and the Department of Health and Human Services. The amount the company has received in SBIR grants since its founding in 1985 totals about $3.6 million. Table App-D-5 summarizes the company’s SBIR/STTR grants in number and amount.

According to Mr. Arms, the receipt of additional SBIR grants in the future is hoped for as a means to enable it to continue to innovate and stay at the forefront of its field. The company is targeting about 25 percent of its total funding to come from SBIR grants in coming years.

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

The company operates at an applied R&D level, and, unlike most R&D-based companies, has had sales from its beginning. Mr. Arms, the company founder and president, emphasized his belief in the need to produce product “to make it real

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

as soon as possible.” Continuing, Mr. Arms said, “Having products lets people know you know how to commercialize and that you intend to do it.”

Mr. Arms sees the company’s main competitive advantage as its role as an integrator of networked sensors. “Our goal is to produce the ideal wireless sensor networks,” he explained, “smart, tiny in size, networked and scaleable in number, able to run on very little power, software programmable from a remote site, capable of fast, accurate data delivery over the long run, capable of automated data analysis and reporting, low in cost to purchase and install, and with essentially no maintenance costs.” These features are important because they help to overcome the multiple barriers that were impeding the wider acceptance of sensors.

While the company sells its sensors mainly in domestic markets, it has from the beginning shipped sensors to customers around the world. Now the company sees market potential particularly in Japan and China. Patenting is reportedly very important to the company’s commercialization strategy.

MicroStrain has received a number of grants in recognition of outstanding new product development in the sensors industry. It has received seven new product grants in the “Best of Sensors Expo” competition. Products that have been recognized by grants include the company’s V-Link/G-Link/SG-Link micro-datalogging transceivers for high speed sensor datalogging and bidirectional wireless communications; its WWSN wireless Web sensor networks for remote, Internet enabled, ad hoc sensor node monitoring; its FAS-G gyro enhanced MEMS based inclinometer; its MG-DVRT microgauging linear displacement sensor; its 3DM-G gyro enhanced MEMS based orientation sensor; its EMBEDSENSE embeddable sensing RFID tag; AGILE-Link frequency agile wireless sensor networks; and INERTIA-LINK wireless inertial sensor.

Society stands to benefit in a variety of ways from improved sensors and networks of sensors. Structures, such as buildings, bridges, and dams, as well as transportation and industrial equipment should have fewer catastrophic failures, because managers will be alerted to emerging problems in time to take preventative action. Homeland security should be enhanced by smarter networks of sensor-based warning systems. Manufacturing productivity may be increased by better planning of required maintenance and avoidance of costly, unplanned downtime. In general, integration of smart sensor networks into civilian and military structures and infrastructure, transportation equipment, machinery, and even the human body can conserve resources, improve performance, and increase safety.

VIEWS ON THE SBIR PROGRAM AND ITS PROCESSES

Mr. Arms made the following several observations about the SBIR program and its processes, some of which focused on the NSF program, some on the Navy program.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
Topic Specification

Mr. Arms contrasted the “open topics” of NSF with the “very specific topics” of the Navy and other agencies, noting the former is particularly important to a company when it is “building capacity,” while the latter is important when the company is positioned to generate a variety of new products.

Financing Gap

Mr. Arms noted that “early on in the life of the company the funding gap was very difficult, but now the company is able to bridge the gap using its sales revenue.”

Value of Keeping Phase I Grants as Prerequisite to Phase II

“Phase I grants are important for getting a reaction to an area; to understanding better a technology’s potential,” said Mr. Arms. “I would not want to see this phase eliminated or bypassed.”

Size of Grants

“It is great that the agencies are beginning to increase the size of their grants,” commented Mr. Arms. “I especially like the NSF’s Phase IIB match grant; it fits well with my company’s commercial emphasis.”

Application Process

Mr. Arms finds the Navy’s SBIR application process particularly agreeable, calling it “the best!”

Value of Commercialization Assistance

The company has not participated in an NSF-sponsored commercialization assistance program, but it has participated in Navy-sponsored opportunity forums and in NSF conferences. It has found the networking provided by these forums and conferences to be very valuable. In fact, it was at an NSF-sponsored conference that MicroStrain made contact with Caterpillar Company, leading it to become a participant in a joint venture led by Caterpillar and sponsored by the Advanced Technology Program.

Observation about NSF’s and Navy’s SBIR Program Manager Systems

“The way NSF conferences facilitate face to face meetings between program managers, who have extensive business experience, with budding entrepreneur-

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

scientists is excellent,” Mr. Arms said. He expressed special enthusiasm for the Navy program managers, calling them “extremely knowledgeable and focused.”

NSF’s Student and Teacher Programs (outside SBIR)

Like several of the other companies interviewed, MicroStrain has used the NSF students program, “but, regretfully, not the teacher program.” Like the other companies that have used these programs, Mr. Arms said MicroStrain had found the NSF students program valuable. “I think it would be a great thing to expand this idea to the other agencies,” he suggested.

SUMMARY

This case shows a still-small company that has emphasized product sales since its inception in 1985. It has leveraged $40,500 of Vermont’s EPSCoR “Phase O” grants to obtain $3.6 million in Federal SBIR grants. With SBIR support it developed an innovative line of microminiature, digital wireless sensors, which it is manufacturing. These sensors can autonomously and automatically collect and report data in a variety of applications. Unlike most research companies, MicroStrain, started by a graduate student, has emphasized product sales since its inception in 1985. Its sensors have been used to protect the Liberty Bell during a move and to determine the need for major retrofit of a bridge linking Philadelphia and Camden. Current development projects include power-harvesting wireless sensors for use aboard Navy ships, and damage-tracking wireless sensors for use on Navy aircraft. Although annual revenues are relatively small ($3 million in 2004), the company can document many millions of dollars of savings achieved by users of its wireless sensor networks. A little more than a quarter of the company’s revenue come from government sources.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

National Recovery Technologies, Inc.13

THE COMPANY

At the time National Recovery Technologies (NRT) was founded, the growth potential for municipal solid waste recycling looked promising. To develop municipal recycling technology, Dr. Ed Sommer applied for an SBIR grant from the U.S. Department of Energy (DoE) soon after starting NRT in 1981. NRT applied first to DoE’s SBIR program for funding, because of the energy implications of municipal waste recycling. After being granted a Phase II DoE SBIR grant, Dr. Sommer said he was advised by a DoE program manager that further research to develop the plastics sorting technology would better fit the mission of EPA because of the environmental benefits of reducing PVC plastic waste in incineration. According to Dr. Sommer, having a close fit with EPA’s mission made it more likely to receive SBIR grants.

Dr. Sommer described his company’s location in Tennessee as very positive from a business standpoint. However, he noted that a drawback is the lack of technology infrastructure in the state. In developing proposals to the SBIR, “you are on your own,” he said. There are not the incubators and other institutional assistance provided by some of the states that have a stronger technology infrastructure. He noted that NRT is the first- or second-largest recipient of SBIR grants in Tennessee.

NRT developed and commercialized several innovative processes for high-speed, accurate analyzing and sorting of municipal solid waste streams. The initial customer base had its origins in state recycling laws. Demand for the company’s initial product was politically driven, not economically driven. In 1991, with venture capital funding, the company installed process lines in large sorting plants located in states with recycling requirements.

An EPA-granted SBIR project was to remove chlorine-bearing PVC from municipal waste streams prior to incineration for the purpose of emissions control. The company was successful in bridging to the new application, and quickly became a world leader in the recycling equipment industry, providing equipment and automated systems for analyzing and sorting plastics and curbside collected materials. It continues to have worldwide equipment sales, mainly in North America, Europe, Japan, and Australia. As a result of this technology development, NRT received EPA’s National Small Business of the Year grant in 1992.

In 1994, the U.S. Supreme Court ruled on a case brought by waste haulers that found that a city violated their rights by requiring them to take collected waste to recycling plants. Because it was cheaper to take it to landfills, many haulers stopped taking it to the sorting plants—taking it to landfills instead—

13

The following informational sources informed the case study: Interview at the company with company founder, president and CEO, Dr. Ed Sommer, Jr.; company Web site (<http://www.nrt-inc.com>); company brochures; and a recent Dun & Bradstreet Company Profile Report.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

NATIONAL RECOVERY TECHNOLOGIES, INC.: COMPANY FACTS AT A GLANCE

  • Address: 566 Mainstream Drive, Suite 300, Nashville, TN 37228 Telephone: 615-734-6400

  • Year Started: 1983

  • Ownership: private

  • Annual Sales: ~$4 million

  • Number of Employees: 14 total; 5 in R&D

  • 3-year Sales Growth Rate: 67 percent

  • SIC: Primary SIC 3589, Manufacture Service Industry Machinery

    358890300, Manufacture Sewage and Water Treatment Equipment

    Secondary SIC: 8731, Commercial Physical Research

    87310202, Commercial Research Laboratory

  • Technology Focus: Initial Focus—Mixed municipal solid waste recycling system. Later focus—Automated process for sorting plastics by type with high throughput and accuracy for cost-effective recycling; electronics-driven metals recycling system; inspection technology for security checking in airports and other security check points; and continuation of the plastics sorting business.

  • Funding Sources: Internal revenue mainly from sales of plastics sorting equipment, venture capital, SBIR funding, and ATP (as subcontractor pass-through).

  • Number of SBIR Grants: From NSF, 3 Phase I, 3 Phase II, and 2 Phase IIB, plus additional grants from DoE and EPA.

causing large numbers of sorting plants to shut down. Plants that employed their own haulers were more likely to survive. At the same time, there was a move for presorting of curbside waste pick-up, requiring less sorting by secondary processors, further reducing demand for the company’s equipment.

As a result of these developments, the company was in trouble. It needed to move into others areas or go out of business. As it looked for new ways to leverage its existing intellectual capital and technology capabilities, it identified new areas in which to apply its technical capabilities: metals recycling and airport security. It continued to pursue automated process technology for high throughput sorting of plastics.

Today the company maintains sales of plastics analysis and sorting equipment with annual sales running about $4 million. At the same time, it is developing new lines of business that were not yet generating sales at the time of the interview. The company employs a staff of 14, 5 of whom are in R&D.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
THE TECHNOLOGIES AND THEIR USES

For plastics recycling, NRT used such technologies as IR spectroscopy for polymer identification, machine vision for color sorting, concurrent parallel processing for rapid identification, quick real-time sorting, and precision air jet selection of materials.

An idea that emerged from discussions with potential customers was metals sorting, smelting, and refining. NRT undertook a research effort now in its seventh year to develop metals processing technologies. It is collaborating with another company, wTe Corporation of Bedford, MA, which has an automobile shredder division, to develop a novel optoelectronic process for sorting metals at ultra-high speeds into pure metals and alloys. It also joined with wTe to form a new company, Spectramet LLC, to serve as the operator of metals reprocessing plants.

An idea for a new technology/business platform that emerged just in the past several years is in the security area. The stream of objects moving along a conveyer belt at an airport security system resembles in many ways a mixed waste stream in the recycling business. NRT’s approach combines fast-throughput materials detection technology with data compilation, retrieval, analysis, storage, and reporting to provide an improvement over the current non-automated, manual inspection system. The Transportation Security Administration (TSA) is evaluating NRT’s system, a necessary step in qualifying it for use in airport security. According to Dr. Sommer, NRT anticipates product sales in 2005.

THE ROLE OF SBIR IN COMPANY FUNDING

According to Dr. Sommer, “Without the SBIR program, NRT wouldn’t have a business. We couldn’t have done the necessary technical development and achieved the internal intellectual growth.” The SBIR program was critical, he explained, both in developing NRT’s initial technology, and in responding to market forces to develop new technologies after a Supreme Court decision caused many municipal solid waste sorting plants to close and the growth potential of the initial waste recycling technology to decline. “SBIR saved our bacon,” said Dr. Sommer. As a result of the intellectual capabilities built within the company through SBIR-funded research, “we continue to be able to contribute.”

In 1985, the company had received a Phase II grant from DoE to pursue development of an automated process for sorting municipal solid waste. Subsequently the company received a series of SBIR grants from EPA, including eight completed Phase II grants between 1989 and 1996, aimed at developing and refining plastics recycling technologies. In 1996, NRT received SBIR grants again from DoE for plastics recycling and mixed radioactive waste recycling. Since 1996, the company has received SBIR grants from both EPA and NSF. Its first Phase II grant from NSF was received in 1999, when the company was in its second decade of operation. The funded project was aimed at developing new

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

technologies in scrap metals processing. Later NSF SBIR funding was aimed at developing new technologies in the security area.

From the NSF, the company has received a total of three Phase I grants, totaling $0.3 million, three Phase II grants, totaling $1.4 million, and, reportedly two Phase IIB grants. Altogether, the company has received more than $5 million in SBIR funding combined from DoE, EPA, and NSF over the past 20 years.

As time passed and the growth potential of the plastics recycling business flattened, Dr. Sommer said that he turned to NSF’s SBIR program to develop new lines of technology. He said that NSF’s SBIR program was particularly appealing because its solicitation is the broadest among the agency programs. NSF’s solicitations allowed the company more leeway to propose new technology development projects that it believed would lead to business opportunities with higher growth potential. At the same time, he characterized NSF’s SBIR program as “very competitive” and its grants “the hardest to get.” With NSF funding, NRT was able to develop metals recycling technology and, more recently, the detection system for airport security.

The “openness” of NSF, Dr. Sommer said, was critical to his business model, which entails first finding a need for a new product, performing market analysis, and then looking for funding to perform research needed to bring a product to the prototype stage. Contrasting NSF’s openness with the “narrow” solicitations of the Department of Defense (DoD), Dr. Sommer explained that he did not apply to the DoD SBIR program because “for us it is not conducive to developing products aimed at a general market.”

Dr. Sommer related how his company (in a subcontractor position to the wTe Corporation, Bedford, MA) had subsequently looked to the ATP for larger amounts of funding to help further develop the metals reprocessing technology. In describing the sequence, he said there was a “spring off from SBIR to ATP.”

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

While it develops the metals reprocessing and security product lines, NRT has maintained a steady revenue stream on the order of $2–4 million/year, primarily from sales of plastics analysis and sorting equipment. Dr. Sommer sees a larger market potential in metals reprocessing—which includes partnerships to operate as well as provide equipment—with projected annual sales revenue in the range of $10–30 million. He sees a larger potential in the security market, with projected sales revenue in the range of $100 million/year. Dr. Sommer expressed his intention to take the company into a faster growth mode with the development of these new lines of business.

Annual sales revenue is currently running approximately $4 million. Revenues reportedly generated as a result of SBIR grants, referred to as “Phase III revenues,” totaled approximately $44 million from the start of the company up to November 2003.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

At least eight products are on the market derived from DoE and EPA SBIR-funded research, including, for example, the following:

  • NRT VinylCycle® system—a grant winning sorting system for separating PVC from a mixed stream of plastic bottles introduced in 1991

  • NRT MultiSort®IR System—an advanced plastic bottle sorting system for separating specific polymers from a mixed stream of materials

  • NRT PreburnTM Mixed Waste Recycling System—a facility with integrated technologies to provide a system for achieving maximum material recovery from waste streams otherwise slated for landfill

Products funded by the NSF SBIR program are still in the development stage. The metal alloy sorting technology under development with NRT’s commercialization partner wTe Corporation is planned to be used by the Spectramet LLC spin-off, jointly owned by NRT and wTe Corp, for processing of metals as opposed to the technology being made available as a commercial equipment product. The advanced third generation of this sorting technology is installed and in initial commercial operation processing selected loads of scrap metals from various suppliers.

Two patents resulting from the NSF funded research have been issued. Four additional patents are pending.

Dr. Sommer identified four types of social benefits that have resulted, or may result, from the SBIR-funded technologies. (1) Knowledge creation and dissemination result from patents the company filed on the intellectual capital coming out of its NSF research, and from presentations. Patents signal the creation of new knowledge and provide a path of dissemination. Company researchers have also presented at conferences in the fields of metallurgy and plastics recycling. (2) Safety effects arise from the automation of sorting machines in recycling plants which appear to have reduced injuries as compared with conveyer belts using labor-intensive hand-picking techniques that bring the worker in close interface with potentially unhealthy waste streams and possibly injurious equipment. (3) Environmental effects result because NRT’s sensing and sorting technologies are based in electronics, not chemicals. Using “dry processes” rather than “wet processes” avoids the runoff of chemicals into waste streams and the associated pollution. Additionally, environmental benefits result directly from recycling plastics and metals into reuse instead of dumping them into landfills. The availability of automated systems that increase the efficiency of the process helps to enable cost-effective recycling of diverse materials around the world. (4) National security benefits may result if NRT is successful in leveraging its automated materials sensing technology into the security arena, improving the efficiency—and more important—the effectiveness of security at airports and other security check points. NRT’s technology is currently under evaluation for airport security applications, and not yet in use.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
VIEWS ON THE SBIR PROGRAM AND PROCESSES
Submitting Proposals Through NSF’s FastLane

Discussing the SBIR application process and how the application process compares among agencies, Dr. Sommer noted that the answer is very time dependent given that the agencies have recently developed more computerized applications processes. He noted that NSF’s FastLane system is “very slick.” It is also very complex, he said, with many modules, which make navigating around the system hard on a newcomer. However, once one becomes familiar with it, it becomes more useful, he concluded.

NSF’s Review Process

Dr. Sommer’s view was that NSF does a “fabulous job” with its review of SBIR proposals. He noted that earlier there was an issue—“too heavy a reliance on university reviewers”—but believes that now there is more use of reviewers who come from the commercial sector who are better able to assess proposals for technology development with commercial potential. He noted that he was so impressed that he wanted to give back to the system, and volunteered to serve on a review panel for NSF. The experience, he said, gave him confidence in the process as being fair. He also saw the experience as a good way to learn the ins and outs of preparing higher quality proposals.

NSF’s Feedback on Reviews

Dr. Sommer also found useful NSF’s feedback system to give applicants information from review results. He said his company had resubmitted a rejected proposal, taking into account feedback received, and was successful with the resubmitted proposal. Asked if he felt his company’s proprietary ideas had ever been threatened during the proposal and review process, he responded with a definite no with respect to DoE, EPA, and NSF.

NSF Program Managers

In speaking of NSF program managers, Dr. Sommer praised those with whom he had direct experience as “extremely dedicated.”

Grant Size

When asked if he thought the size of SBIR grants should be increased, possibly in trade-off to a decrease in the number of grants, Dr. Sommer responded that he thought the size of Phase I grants is about right, and noted that “it is good to spread around the funding,” rather than concentrate it in fewer grants. He said

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

that he would, however, like to see somewhat larger Phase II grants. In this regard, he characterized NSF’s Phase IIB grant as “a very good tool, providing a boost to finding other dollars.” He noted that the Phase IIB requirements fit well with his business model. He also reiterated that it is good that the ATP is available to provide larger research grants.

Funding Gap

Dr. Sommer noted that there often is a lag—a funding gap—between Phase I and Phase II grants that can “put the brakes on research.” He explained that he is fortunate in having an ongoing business with a revenue stream that can help him bridge the gap with internal funding, rather than shut down the research as he would otherwise have to do.

Phase I as a Prerequisite to Phase II

When asked if he would like the opportunity to bypass the Phase I grant and go directly to Phase II, Dr. Sommer responded that often research funded in-house positions him to have the ability to apply directly for a Phase II grant. “Phase I,” he said, “makes you do your feasibility analysis more thoroughly than you might otherwise do, but this can slow you down.” He saw both pros and cons to keeping Phase I as a prerequisite; his response was inconclusive.

Commercialization Assistance Program

A company founder and CEO, Dr. Sommer, holds a doctorate degree in physics from Vanderbilt University. He went into business soon after receiving the degree. According to Dr. Sommer, he earlier resisted participating in the commercialization assistance programs sponsored by SBIR programs, and dropped out of a program that he had begun. He thought that the time requirements were excessive, and he resisted a diversion from his focus on technical issues. In 2000, however, he enrolled for a second time in the commercialization assistance program provided by Dawnbreaker Company. This time he completed the program, which he described as highly beneficial, providing him with insights, vision, know-how, and tools to more aggressively pursue business opportunities. He said he needed the training.

NSF’s Solicitation Topics

Dr. Sommer emphasized that he would like to see preserved the “openness” of NSF’s solicitation, which he called “critical” to maintain.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
NSF’s Emphasis on Commercialization

Another important feature of the NSF program that Dr. Sommer thought should be kept is the emphasis of the program on commercialization.

NSF’s Review Process

Dr. Sommer expressed the view that it is very important that NSF achieve a balance in the use of university reviewers and those knowledgeable and experienced in business.

SUMMARY

This case study shows how SBIR is used not only by a start-up company to help it establish a technology platform from which it can launch a business, but also by a mature company that needs to rejuvenate its technology platform in order to meet changing markets. The case study company, NRT, used SBIR grants initially to support R&D underlying its first line of business. In its second decade, it used SBIR grants to leverage its existing technological base in a directional change that offers potential for future robust growth.

The NSF SBIR grant solicitation with its broad topic areas and emphasis on commercialization fits particularly well the company’s business strategy of first identifying a potential market opportunity, developing a research plan to bring a product/process to the prototype stage, and then looking for early stage research funding to make it happen.

This case also illustrates a business trajectory that, although up to this time, is not dramatic in terms of its growth, is significant when considered as one of many such companies enabled by the SBIR program. The company has survived for over 20 years, remaining small but steadily employing approximately 10 to 15 people, generating on the order of $4 million per year, meeting niche market needs that have energy and environmental implications, and poised to make further, potentially substantial technological contributions and to achieve growth. It may be argued that this company represents a component of the R&D landscape, which in its aggregate is an extremely important part of the nation’s capacity to innovate.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

NVE Corporation14

THE COMPANY

This small company traces its origins to a very large company, Honeywell, Inc. The company founder, Dr. James Daughton, co-invented “Magnetoresistive” Random Assess Memory (MRAM) while at Honeywell. On retiring from Honeywell, he licensed the technology for pursuit of civilian development and applications, and, in 1989, founded Nonvolatile Electronics, Inc. (NVE).15 Other former Honeywell employees joined NVE following a downsizing at Honeywell and continue with NVE today.

Initially the company operated out of the founder’s home in a Minneapolis suburb, but in the early 1990s after receiving research funding from the SBIR program and from the Advanced Technology Program (ATP), it found space in a nearby Eden Prairie, MN, industrial park. Today it leases a facility of approximately 21,000 square feet, which includes offices and a clean-room for research and fabrication of semiconductor devices. It employs a staff of 70, including 24 in R&D—12 at the Ph.D. level, and the rest in product development, manufacturing, and administration.

The company has licensing arrangements with other companies, among them Honeywell, Motorola, Cypress Semiconductor, and Agilent Technologies. It also has affiliations with a number of universities, including the University of Minnesota, Iowa State University, and the University of Alabama, and it has sponsored a university student through an NSF program.

THE TECHNOLOGY AND ITS USE

Since its founding, the company has continued development of MRAM, a revolutionary technology that fabricates memory with nanotechnology and uses electron spin to store data. MRAM computer chips could prevent accidental losses of information when the power is interrupted, extend battery life, and replace essentially all RAM technology in use today. A website devoted to MRAM news (<http://mram-info.com>) calls the technology the “holy-grail” of memory, and states that it “promises to provide non-volatile, low-power, high-speed and low-

14

The following informational sources informed the case study: interview at the company with Robert Schneider, Director of Marketing, Richard George, Chief Financial Officer, and John Myers, Vice President of Development; information from the company Web site: <http://www.nve.com>; the company’s Annual Report for 2004; company press releases and selected press clippings; an article about the company’s technology in Sensors, Vol. 21, No. 3, March 2004; Dun & Bradstreet Company Profile Report; earlier interview results compiled by Ritchie Coryell, NSF (retired); and an earlier “status report” developed by ATP.

15

In 2000, through a reverse merger, the company officially took the corporate name of NVE Corp. It trades on the Nasdaq SmallCap Market under the symbol “NVEC.”

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

NVE CORPORATION: COMPANY FACTS AT A GLANCE

  • Address: 11409 Valley View Road, Eden Prairie, MN 55344

  • Telephone: 952-829-9217

  • Year Started: 1989 (Incorporated 1989)

  • Ownership: Traded on the NASDAQ Small Cap Market as “NVEC”

  • Revenue: $12 million annually

    • Share from SBIR/STTR grants: 35 percent

    • Share from product sales, R&D contracts, and licensing: 65 percent

  • Number of Employees: 70

  • SIC: Primary SIC 3674

  • Technology Focus: Spintronics-based semiconductors, a nanotechnology which utilizes electron spin rather than electron charge to acquire, store and transmit information

  • Application Areas: Electronic memory, sensors, and isolated data couplers

  • Facilities: Leases 21,362 sq. ft.

  • Funding Sources: Commercial sales, government sales, licensing fees, federal government grants & contracts, stock issue, private investment, venture capital funding, and reinvestment of retained earnings.

  • Issued Patent Portfolio: 34 issued U.S.; more than 100 patents worldwide issued, pending, or licensed from others

  • Number of SBIR grants:

    • From NSF: 31

    • From other agencies: 90

cost memory.” MRAM is based on effects named “Giant MagnetoResistance” (GMR) and “spin-dependent tunneling,” whereby a sandwich of metals shows a substantially greater change in resistance than a single metal of the same size when exposed to a magnetic field. These effects enabled researchers to increase signal strength while increasing density and decreasing size.

The technology has proven a challenging pursuit indeed. A decade later MRAM remains largely a promise still falling short of the realization of its huge commercial potential. However, NVE has developed significant intellectual property in MRAM that it has licensed to both Motorola and USTC for initial license fees and future royalty payments when it is put into commercial use. Other companies, including IBM Corporation, Hewlett-Packard Company, Infineon Technologies AG, NEC Corporation, Fujitsu Limited, Sony Corporation, and Samsung Electronics are also seeking to develop MRAM chips.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

It should be noted that there are currently available nonvolatile memories, such as “flash” memories and ferroelectric random access memories (FRAMs), and there are also emerging technologies that are expected to compete with MRAM, such as polymeric ferroelectric random access memory (PFRAM), ovonic unified memory (OUM), and carbon nanotubes. However, according to its developers, MRAM offers advantages over the existing nonvolatile memories in terms of speed, lower power use, longer life expectancy, and freedom from other limitations, and also advantages over the emerging technologies, including being closer to market.

As NVE pursued MRAM development, it saw other potential commercial applications in the GMR effect. By the mid-1990s, NVE was making and selling GMR-based sensing products for such diverse applications as automotive braking systems, medical devices, and portable traffic monitoring instruments.

NVE now describes its technical focus as “spintronics,” a nanotechnology based on MRAM research, which, like MRAM, takes advantage of the property of electron spin. The technology combines quantum mechanical tunneling with magnetic scattering from the spin of electrons, resulting in a new phenomenon called “spin-dependent tunneling (SDT)” or “magnetic tunnel junctions (MTJ).”(SENSORS, March 2004). The targeted application area is magnetic field sensing for which very small, inexpensive sensors with high sensitivity to small changes in the magnetic field are required. Standard silicon microprocessing methods can be used to fabricate SDT devices. The company expects to enter the market within several years with SDT sensors in complex magnetometer systems, in small simple event detectors, in arrays for perimeter security, vehicle detection, and other security systems, and also for detection of deep cracks, corrosion, and other deeply buried flaws. Further in the future, applications are anticipated for physiological monitoring, advanced magnetic imaging, and other areas not yet identified.

THE ROLE OF SBIR AND OTHER GOVERNMENT R&D FUNDING

Federal grants for R&D—both from SBIR and ATP—have played an essential role in the company’s start-up, survival, and growth. During its early days, the company’s founder credited government R&D funding with preventing the company from failing and improving its ability to attract capital from other sources.

More recently, NVE’s vice president called the SBIR program “the mother of invention.” The company currently derives approximately half of its funding from government funding, including SBIRs and BAAs (Broad Area Announcements that federal agencies may use to solicit contract work), and the remaining half from commercial sales, up-front license fees and royalties, stockholder investment, and retained earnings. It views SBIR and other government R&D funding programs as essential to being able to perform the advanced R&D that

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

TABLE App-D-6 NVE Corporation: SBIR/STTR Grants from NSF and Other Agencies

NSF Grants

Number

Amount ($)

Other Agency Grants

Number

Amount ($)

Total Number

Total Amount ($)

SBIR Phase I

19

1,487,000

SBIR Phase I

51

4,512,000

70

5,999,000

SBIR Phase IIa

9

3,540,000

SBIR Phase IIa

34

22,428,000

43

25,968,000

SBIR Phase IIB/Enhancements

2

582,000

SBIR Phase IIB/Enhancements

2

488,000

4

1,070,000

STTR Phase I

1

100,000

STTR Phase I

1

70,000

2

170,000

STTR Phase II

0

0

STTR Phase II

2

1,120,000

2

1,120,000

STTR Phase IIB/Enhancements

0

0

STTR Phase IIB/Enhancements

0

0

0

0

Totals

31

5,709,000

 

90

28,618,000

121

34,327,000

aExludes Phase IIB/Enhancement awards which are listed separately.

SOURCE: NVE Corporation.

has allowed the company subsequently to produce products for sale and to license intellectual property.

Table App-D-6 summarizes the company’s SBIR/STTR grants from the National Science Foundation (NSF) and other agencies. The 121 SBIR and STTR grants received have totaled $34.3 million in R&D funding. Approximately a fourth of the 121 grants have come from NSF.

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

NVE President and CEO, Daniel Baker, has been recently quoted as saying, “We believe that NVE is well positioned with critical intellectual property covering a broad range of near-term and long-term MRAM designs. Our MRAM strategy, therefore, will be to focus on an intellectual property business model, providing technology to enable revolutionary memory designs rather than both providing technology and selling devices.” (NVE Press Release, April 19, 2005) Regarding NVE’s strategy regarding sensors and signal couplers, it appears that NVE will continue to build its intellectual property base in SDT and GMR sensors, as well as continue to design, fabricate, and sell a variety of sensor and signal coupler devices for both commercial and defense applications.

Product revenue from sales of spintronic sensors and couplers has steadily increased, reaching $5.4 million in FY 2004, and the company projects its commercial product revenues to continue to grow. R&D revenue for FY 2004 rose to $6.6 million, as government contract revenue increased. Total revenue for FY 2004 totaled $12 million. As of the end of FY 2004, NVE had been profitable for two years, and the firm was projecting continued profitability into FY 2005.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

The spintronic sensors and couplers sold by NVE offer value-added benefits to users in terms of accuracy and data rates. The firm’s unique components provide up to three-to-four times the accuracy and twice the data rate of conventional electronics, allowing users to make better products at lower costs.

NVE has stated recently that the commercial viability of MRAM technology is now more assured. It expects FY 2005 to be pivotal for MRAM commercialization. In additional to nonvolatility, MRAM’s potential benefits to users are high speed, small size, increased life expectancy, lower power use, and scalability. Nevertheless, as indicated earlier, the competition among firms and among technologies is intense.

VIEWS ON THE SBIR PROGRAM

The interviewees strongly supported the SBIR program in general. They noted that it has fostered the development of a large number of small R&D companies like itself that “collectively comprise the modern-day equivalents of the Bell Labs of the past.” They emphasized the advantages of performing R&D in a small-company environment where “there is much more freedom to innovate” and “R&D is not viewed as an unwelcome tax on what is considered the productive part of the corporation.” They expressed the hope that program officials and policy makers will not underrate the importance of this collective group of small firms by assuming that only if they individually grow into large companies are they worthwhile from the standpoint of the economy and its innovative capacity.

At the interviewer’s request, the three NVE officials shifted their focus to NSF’s SBIR program, beginning with a positive comment and then turning to areas for potential improvement:

Praise for NSF Portfolio Mangers

NVE officials emphasized the high quality of NSF’s program managers. They identified several of the program managers by name, calling them as a group “a class act.”

Concern about an Unofficial Limit on Number of Grants to a Firm

The NVE team voiced concern that NSF (NIST was also mentioned) appears to be imposing an unofficial criterion on top of the official proposal eligibility criteria, in the form of a limit on the number of grants a given company can receive. According to the company representatives, the company is sometimes informed that it must choose a subset of the total number of grants for which it has been deemed eligible, as evaluated against the published criteria.

Moreover, since the company is aware of firms that it believes have received

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

many more SBIR grants than NVE, it has the impression that the agency may be applying an unofficial limit on grants unevenly among applicant firms. At the same time, other agencies do not appear to have such a criterion—either officially or unofficially.

NVE’s position is that if the company has submitted multiple proposals that meet an agency’s published SBIR eligibility requirements, it should be able to receive the grants for which it is eligible without limit, given there is no overlap among them and adequate funding. If there is a limit on the number of grants that a company can receive, NVE believes this limit should be made official, explicit, and be evenly applied so that companies can know up front exactly what rules apply before they incur the considerable costs of proposing.

Concern about Limit on Number of Proposals Allowed

NVE also noted a limit on the number of proposals a company can submit to NSF in a given year. If topical solicitations are spread out over the year, as they are for NSF, this limit means that a company must make decisions about how it will spend its proposal “quota” among the topic areas before it may be ready to do so strategically.

Need to Overcome a Timing Problem

NVE noted that NSF’s timing of its solicitations mean that if you miss a key date, you miss a whole grant cycle. Extending the proposal submittal window or opening it several times a year would help to overcome this timing problem.

Comments on Commercialization Assistance

According NVE’s Director of Marketing, participation in the Foresight activity was of greater value to the company than was the Dawnbreaker activity. A reason given was that the Foresight staff appeared to have more industry experience.

Lack of NSF Travel Funds

NVE officials expressed concern that NSF program managers are not able to conduct company site visits. “On-site visits would be good.” At the same time, they noted that the annual SBIR/STTR Phase II meeting provides them the opportunity to discuss their projects with the NSF program managers.

SUMMARY

This case study shows how a company, which traces its origins to a large company, used SBIR and other federal grants to help launch the company, to

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

keep it from failing, and to improve its ability to attract capital from other sources. Since its founding, the company has pursued development of MRAM technology that uses electron spin to store data and promises nonvolatile, low-power, high-speed, small-size, extended-life, and low-cost computer memory. As NVE pursued MRAM development, it saw related potential applications such as magnetic field sensors. NVE has developed substantial intellectual property in MRAM technology. The company has licensing arrangements with a number of other companies. Approximately half of the company’s funding comes from government funding, and the remainder from commercial sales of magnetic field sensors, up-front license fees, and royalties. The company is now traded on the NASDAQ Small Cap Market.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

T/J Technologies, Inc.16

THE COMPANY

Maria Thompson, with an M.B.A. degree and industry experience in product development and marketing, and her husband, Levi Thompson, with a Ph.D. in chemical engineering, combined their expertise to start T/J Technologies in 1991. They started the company by taking over a Department of Defense SBIR Phase I grant from a company that was divesting contractual obligations. The Thompsons rented a lab bench in a friend’s small laboratory space, hired an employee, and put their savings into the enterprise. The SBIR grant was to develop ultrahard coatings for armor. Because the funding was quite limited, Ms. Thompson, “kept her day job” as an IBM marketing representative, and Dr. Thompson, who is an officer in the company, continued at the University of Michigan where he is now a tenured professor in the College of Engineering, and Associate Dean for Undergraduate Education. They ran T/J Technologies as a part-time business for the next three years, working evenings and weekends. Then, in 1994, Ms. Thompson left IBM and focused on being president of T/J Technologies.

T/J TECHNOLOGIES, INC.: COMPANY FACTS AT A GLANCE

  • Address: 3850 Research Park Drive, Ann Arbor, MI 48108

  • Telephone: 734-213-1637

  • Year Started: 1991

  • Ownership: privately held; minority-owned and operated

    • Revenue: Confidential

  • Number of Employees: 24

  • Primary SIC: 8731 Commercial Physical Research

  • Technology Focus: Nanomaterials for alternative energy devices such as batteries and fuel cells.

  • Application Areas: Rechargeable batteries, ultra-capacitors, and fuel cells

  • Funding Sources: Government grants and grants, contract research, joint development programs, angel investment, and sales of material samples

  • Number of SBIR Grants:

    • From NSF: 10 Phase I, 7 Phase II, and 2 Phase IIB

    • From other agencies: 23 Phase I, 8 Phase II, 1 Phase III

16

The following informational sources informed the case study: interview with Maria Thompson, President and CEO of T/J Technologies, conducted at the company’s offices in Ann Arbor, MI; the company Web site: <http://www.tjtechnologies.com>; company product brochures and press releases; two papers, “Improving the Power Density of PEM Fuel Cells” and “Ultra-High-Rate Batteries Based on Nanostructured Electrode Materials,” both presented at the 41st Power Sources Conference, June, 14–17, 2004, and available at the company’s Web site; a profile of Ms. Thompson appearing in the Detroit Free Press, July 28, 2003; and a recent Dun & Bradstreet Company Profile Report.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

From its initial work in ultrahard coatings, the company moved into developing ultracapacitors, and that led them into a specialty in advanced materials and devices for electrochemical energy storage and conversion. Particularly notable are its advances in rechargeable batteries, ultracapacitors, and fuel cells. The company holds seven patents and has a number of others pending in the area of nanomaterials for alternative energy technologies.

The technical and business achievements of T/J Technologies have been recognized in grants at the national and state level. In 2005, the company was designated one of the “50 Companies to Watch in Michigan.” In 2000, the company received the DoD Nunn Perry Grant for its ultra-capacitor development with Lockheed Martin, and it also received the “Product of the year Grant” from the Michigan Small Business Association. In 2000, Ms. Thompson was named one of Metro Detroit’s Innovators by Crain’s Detroit Business. Among other grants, T/J Technologies and Ms. Thompson received Black Enterprise Magazine’s “Innovator of the Year” grant in 1998. The company has been featured in Fortune Small Business, Black Enterprise, the Detroit News, and other business journals and newspapers.

The company has grown to approximately 25 employees, most of whom are scientific researchers and many of whom have doctorate degrees. Employee disciplines include chemical engineering, polymer science, chemistry, and electrochemistry. The company occupies 12,500 square feet of industrial space in Ann Arbor, Michigan, the home state of Ms. Thompson and where both Dr. and Ms. Thompson attended the University of Michigan.

THE TECHNOLOGY AND ITS USES

T/J Technologies designs advanced materials for energy storage and energy conversion devices. It has a nanocomposite cathode composite material for lithium-ion (Li-ion) batteries. It has developed a series of electrocatalysts for fuel cells that have implications for portable power applications.

The characteristics of the materials developed by T/J Technologies are expected to enable a new class of proprietary, high power Li-ion batteries that are suited for a wide variety of high rate commercial and military applications.

The company also provides expertise in materials synthesis and processing and materials testing services. The company offers consulting services in nanomaterials, energy storage materials, and fuel cell battery research, development, and commercialization.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
THE ROLE OF SBIR IN COMPANY FUNDING

Despite the fact that Ms. Thompson did not know of the SBIR program in advance of starting the company, it was a Phase I SBIR grant that got the company started. When her husband identified an opportunity to start their company by picking up research from another company, she regarded it as an opportunity. During the course of arranging the transfer, she learned about the SBIR. Her teacher was MERRA, a Michigan-based organization aimed at boosting the State’s technology businesses. “MERRA explained the concept of SBIR and how the various phases worked.” Afterwards, T/J Technologies went on to propose and win new SBIR grants.

“The SBIR grants served as building blocks for us,” explained Ms. Thompson. With the technical capacity developed in a series of SBIR, the company applied for an award from the Advanced Technology Program (ATP). “When we went to apply for an ATP award, even though MERRA was disbanded, the people were still around and they helped us with our ATP proposal by giving us feedback. When we reached the finalist stage, they volunteered to do a dry-run with us in preparation for the oral review. As a result, we were very well prepared. So now we try to give back to the community the kind of support we received when we needed it. At this time, most of this kind of assistance in Michigan is on an Ad Hoc basis.”

Continuing with the building block model, Ms. Thompson explained that the ATP and SBIR grants in turn served as building blocks for pursuing research contracts with the Army under competitive-issued Broad Agency Announcements (BAA) for contract research, the company’s current major source of funding. And the BAA work in turn is serving as a building block allowing the company to develop partnerships with global firms who are testing T/J Technologies’ materials and building batteries collaboratively for demonstration purposes.17 The company is executing its commercialization strategy with its strategic partners.

“We’ve been granted these larger contracts because of some of the technologies developed with SBIR. All of these things are very synergistic. Without the SBIR, we couldn’t have won the ATP. And, without the ATP and SBIR, we may not have had the technology with which to earn the larger contracts and the joint development agreements. So they are all linked.”

Ms. Thompson noted that SBIR grants are still part of the company’s funding mix, “helping us to round out our capabilities in certain areas, such as hydrogen storage and high temperature membranes.” About 15 to 20 percent of the company’s funding reportedly is coming from SBIR grants in 2005, and most of the remainder is from contract research. A small amount is from sales of material

17

A recent report commissioned by the Advanced Technology Program investigates the question, “Why are there no volume Li-ion battery manufacturers in the United States?” (See Ralph J. Brodd, Factors Affecting U.S. Production Decisions: Why are there No Volume Lithium-Ion Battery Manufacturers in the United States? ATP Working Paper Series, Working Paper 05-01, June 2005.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

TABLE App-D-7 T/J Technologies, Inc.: SBIR/STTR Grants from NSF and Other Agencies

NSF Awards

Number

Amount ($)

Other Agency Awards

Number

Amount ($)

Total Number

Total Amount ($)

SBIR Phase I

10

949,999

SBIR Phase I

23

1,737,113

33

2,687,112

SBIR Phase IIa

7

3,525,361

SBIR Phase III

8

5,247,169

15

8,772,530

SBIR Phase IIB

2

575,000

SBIR Phase IIB/Enhancements

1

223,864

3

798,864

REU

2

12,000

 

 

 

2

12,000

STTR Phase I

0

 

STTR Phase I

6

598,499

6

598,499

STTR Phase II

0

 

STTR Phase II

1

500,000

1

500,000

STTR Phase IIB/Enhancements

0

 

STTR Phase IIB/Enhancements

0

 

 

 

Totals

21

5,062,380

 

39

8,306,645

60

13,369,005

aExludes Phase IIB/Enhancement awards which are listed separately.

SOURCE: T/J Technologies, Inc.

samples in conjunction with the joint work with global companies that is expected to lead to commercialization of the materials.

Emphasizing that the building block model may need to be repeated as they look at different materials, Ms. Thompson said, “We need a family of materials for multiple applications. Multiple materials are needed for batteries, and also for the various components. You have to demonstrate a whole system, and that takes time and money,” she said.

“STTRs also can help a company like ours,” noted Ms. Thompson, “because you may need a piece of technology from a university to help put together a broader system.” Also, along the way, the company has received funding from angel investors.

Thus far, T/J Technologies has received a total of 33 Phase I SBIR grants, 15 Phase II grants, 2 Phase IIB supplemental grants, and 1 Phase III grant. It has received SBIR grants from multiple agencies, including the Army, Air Force, NASA, DoE, and NSF. The amount the company has received in SBIR grants since its founding in 1991 totals about $12.3 million, and the total in SBIR and STTR grants amounts to approximately $13.4 million. Table App-D-7 summarizes the company’s SBIR/STTR grants in number and amount.

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

As a materials development company, T/J Technologies typically faces a 5 to 7 year cycle to develop a material. With materials development, it is unrealistic to expect to advance from the discovery of a nanomaterial to an end product with one cycle of SBIR Phase I, II, and IIB funding. “It just doesn’t happen that way,”

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

said Ms. Thompson. She noted that the company is now focusing on “moving further up the value chain. We have demonstrated the value of our proprietary technology to the end user in specific applications. When the customer understands that our materials will enable them to enter new markets, the conversations with suppliers in that value chain are much easier.”

“T/J Technologies has a pipeline of cutting edge alternative energy technologies which has made the company interesting to larger corporations seeking to get into this market. While forming partnerships can be beneficial, they need to be negotiated with great care. There must be real need for both parties,” she said. “The increasing need and interest in alternative energy technologies, and the cutting edge intellectual property that we have developed through the SBIR and ATP programs, have attracted multiple players to us. Small companies have a stronger negotiating position when more than one company competes for their technology.”

“It is essential that these small companies—particularly those run by scientists—not be forced into a position where they will be taken advantage of,” she said, commenting on public policies that might lead to this outcome…. Yes, the requirement for a match for the Phase IIB grant is useful in ruling out dumb technologies which will never be commercialized. But, too often the companies that you go to for matching funds want too much in return—if you go too early to the table…. A better approach is to work with them, develop a relationship. Find out what the end customer wants; what the relevant problems are. Let them test your materials. They will spend resources to do so, and they will not do so unless there is real interest. It is usually possible to get them to put a dollar value on those resources.”

The significance, Ms. Thompson explained, of obtaining such valuation of resource expenditures comes into play if it is acceptable for meeting SBIR matching funds requirements of the Phase II grant. This is a good indicator of interest in commercialization, she explained, “Because companies are busy; they are not going to give you in-kind support unless they are interested.” However, she went on to say that letters of commitment and estimates of resource committed for testing are also very difficult to get. “You might get an agreement from the scientist or business person, only to be shot down by the company’s legal department. They may agree to do the testing, but refuse to put it in writing.”

T/J Technologies’ novel materials offer potential benefits in terms of meeting the need for alternative energy sources that can be used to power automobiles and other vehicles, as well as to meet stationary power needs. The materials offer high-rate performance and reductions in the cost, size, and weight of batteries. The materials also offer environmental benefits in that, unlike most other lithium ion cathodes, T/J Technologies materials do not contain cobalt, an undesirable component from a safety and environmental perspective. In addition, if the company’s technology furthers the adoption of alternative energy sources, it stands to yield broad environmental and national security benefits associated with reduced dependency on conventional energy sources.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
VIEWS ON THE SBIR PROGRAM AND PROCESSES

Ms. Thompson expressed her views about the SBIR program and its processes. She also made relevant comments about broader public policy concerning government support of innovative companies in the United States. These comments are also summarized.

Different Roles of the SBIR Programs of NSF, DoE, and DoD

“NSF is unique in that it is willing to fund basic materials research,” explained Ms. Thompson. “Even though the military is an early adopter customer, a lot of DoD-funded SBIR grants tend to be focused at the systems end versus the basic-materials-research end.”

Difficulty in Getting SBIR Grants

“I think it has gotten harder to get SBIR grants,” said Ms. Thompson, “because other sources of money have dried up or gotten harder to get. This seems to have resulted in more competition for SBIR grants.

Funding Gap

Early on, there was a problem with the gap between the different SBIR funding phases, noted Ms. Thompson. But the state [Michigan] had a program—which was very short lived but very helpful while it was there—that provided some funding to help keep you going until Phase II came through. She further noted that now the company is big enough and has enough of a variety of funding sources, so sustaining the gap is no longer a problem.

Value of Keeping Phase I Grants as Prerequisite to Phase II

Ms. Thompson sees several reasons to keep the Phase I grant as a prerequisite to Phase II. One concern she expressed was that allowing companies to bypass Phase I may give larger (small) companies, which tend to have more internal funds and more experienced managers, an advantage over smaller (small) companies. The larger companies could self-fund entry level research and be positioned to win more Phase II grants. “Keeping the Phase I requirement may help keep the playing field more level,” she said, “because the only companies you are competing with at the Phase II stage are all the others who, like you, won a Phase I.”

Size of Grants

“Writing proposals for small amounts of funding is a distraction from the research. So I think I’d rather see fewer but larger Phase II SBIR grants,” she

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

noted. “Even with the cost share, a benefit of the ATP is that the money was sufficient to allow us to focus on getting the research done to a stage where we could get commercial interest.”

Time Between Solicitations

“Having no more than six months, instead of a year, between solicitations would help,” she stated. “It would allow the SBIR program to generate better and more ideas.”

Proposal Review

“I think the agencies need more people who have headed small innovative companies as reviewers,” stated Ms. Thompson. “I think this because sometimes you get the reviews back and you get two ‘excellent’ ratings that clearly explain why, and one ‘poor’ rating with comments that show that the reviewer just doesn’t get it. This happens to everybody. It is frustrating for a company that has put a lot of resources into its proposal. It’s just your tough luck. There currently is no remedy for this problem.”

Reviewer Feedback

Feedback from the reviewer process was described as “very useful.” Most agencies were said to give feedback only if the company loses. “It would be helpful to give it to you if you win also as it makes sense to continually improve your work.”

Application Process

Ms. Thompson noted that differences in formatting styles among the various agencies can cause extra effort, and there does not seem to be any apparent value in having the differences. However, she also noted that having variations in styles is only a minor problem.

Value of Commercialization Assistance

Ms. Thompson (who herself has an MBA and years of industry experience) found some things about the Dawnbreaker Program useful, but she also saw opportunities for improvement. She found the quality of the assistance provided to be highly variable depending on the particular staff assigned. At the same time, she said, “I think for a scientist who doesn’t have anybody who is business oriented, it would be a very good training ground. It would let them know that it is not just the technology that they are betting on. They need to hear this and also

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

learn how to put together a business plan.” Assuming the appropriate companies attend the matchmaking event, the program can be very helpful.

Ms. Thompson found that the networking events sponsored by the various agencies could be very beneficial. These allowed her to go and meet companies who are interesting in possible partnering arrangements. T/J’s relationship with Lockheed Martin started at one of these events that was held in Michigan.

She also commented that training sessions at the NSF conferences were very useful, particularly the session on patents. She suggested that adding more educational events aimed at business topics could be very helpful to companies. Commenting on NSF’s online Matchmaker service, Ms. Thompson said she thought it was more focused on fostering matches with venture capitalists.

Company Site Visits by Agency Program Managers

“Having site visits would help the SBIR program staff get closer to the companies and understand better what they are doing,” she said. “SBIR program managers have a tough job dealing with a variety of technologies. Getting out to the companies would help them develop more depth.” She gave as an example of an excellent model the company’s experience working with ATP’s program manager for battery research. “[This ATP program manager] knows everybody who is working in the field. He knows the business. He performs matchmaking very naturally and very skillfully. It is very valuable.”

Assumption of Inappropriate Business Models

Ms. Thompson urged that some public policy makers reconsider the business models many appear to hold. “Some policy makers may think a small company like ours can get a Phase I SBIR grant, then a Phase II, then get venture capital and build a plant, and then produce product. There are other business models that can be equally as successful.

Assistance to Innovators

Continuing, Ms. Thompson noted that other countries—providing fierce competition to the United States—have set up their own technology funding programs like the ATP … “at a time that our own ATP program is under attack. They are positioning to eat our lunch! Not only are our manufacturing jobs at stake, but now our research jobs are also at stake. We are in a time-critical race. And it is tough to get American companies to invest in a market that is still down the road. So when you look at all these small companies toiling away with SBIR help, and making it in spite of the situation, that is very exciting. And whatever from a policy standpoint we can do to help these companies that are developing new technologies and markets—activities that ensure our economic future and competitiveness—then we should do it.”

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
SUMMARY

This case study features an innovative materials research company facing a relatively long time to commercialization and a need to form partnerships with global companies to reach civilian markets. It shows a company moving up the value chain in order to increase the value it can receive for its technology in an environment where funding is scarce and negotiations difficult. The case illustrates a “building block” strategy, where SBIR grants enabled the company to start and build capacity; that capacity was leveraged into an ATP grant; the ATP grant leveraged the company’s ability to go after government research contracts; and research contracts leveraged its ability to form commercial partnerships with much larger companies for testing and demonstrating its materials. The next step is commercialization, which will be achieved through a partner. At the helm of the company is a grant-winning minority woman, during a time that woman-owned and minority-owned businesses have received a relatively low share of SBIR grants.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

WaveBand Corporation18

THE COMPANY

WaveBand Corporation emerged in 1996 as a spin-off of Physical Optics Corporation (POC). POC is a small, employee-owned company that specializes in optoelectronic solutions and products. WaveBand is one of several companies that POC has spun off. Six POC employees moved to WaveBand to assist with the spin-off, and POC retained major ownership of the new company. According to Ms. Quintana, WaveBand’s Director of Business Development and a former POC employee, “a goal of WaveBand was to become truly independent of POC.”

Based in Irvine, CA, WaveBand Corporation became known for innovation in the field of millimeter wave (MMW) technologies, including beam-steering antenna and imaging radar systems. In early 2005, the company had 24 employees, half of whom had Ph.Ds. Its revenue in 2004 was $5.5 million.

Today, WaveBand is a wholly owned subsidiary of Sierra Nevada Corporation (SNC). SNC acquired WaveBand Corporation in May 2005. SNC is a rapidly growing innovative systems integrator, located in Sparks, NV, specializing in the design, development, production, installation and servicing of defense electronics engineering systems. Founded in 1963, SNC is the parent company of a group of more than six companies with the following four areas of focus: air traffic control; unmanned aerial vehicle systems; instrumentation, test, and training systems; and intelligence, surveillance, and reconnaissance systems. SNC employs more than 750 employees, and, hence, is not eligible for SBIR grants.

THE TECHNOLOGY AND ITS USES

WaveBand’s antennas provide rapid beam steering and beam forming, and they do this without the use of bulky mechanical steering. Rather, the WaveBand antenna technology in one of its implementations relies on a grating formed on a spinning drum to steer the radar beam. In this way, it avoids the use of mechanically moved reflectors, which are slow, and electronically steered phase shifters, which are fast but expensive. In short, WaveBand’s antennas were developed to overcome problems of slowness or expense that characterize traditional antennas. Their more advanced antenna technology implementation is designed to meet the need for electronically steerable antennas that are comparable to phased array

18

The following informational sources informed the case study: interview conducted with Ms. Toni Quintana, WaveBand’s Director of Business Development, at the U.S. Navy Opportunity Forum, May 2–4, 2005, in Reston, VA; WaveBand’s Web site: <http://www.waveband.com>; Sierra Nevada Corporation’s Web site: <http:www.sncorp>; Sierra Nevada Corporation’s press release announcing the acquisition of WaveBand; and WaveBand’s Department of Defense SBIR Commercialization Report.

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

WAVEBAND CORPORATION: COMPANY FACTS AT A GLANCE

  • WaveBand Address: 17152 Armstrong Ave., Irvine, CA 92614

  • Telephone: 949-253-4019

  • Year Started: Spun off from Physical Optics Corporation (POC) in 1996; acquired by Sierra Nevada Corporation in 2005

  • Ownership: Sierra Nevada Corporation, 444 Salomon Circle, Sparks, NV, itself a privately held corporation

  • Revenue: Approx. $5.5 million in 2004

    • Revenue share from SBIR/STTR grants and contracts: approx. 50 percent

    • Revenue share from sale of products, including DoD sales: approx. 50 percent

  • Number of Employees: 24 prior to the acquisition

  • SIC: Primary SIC: 3812 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical Systems and Instruments Secondary SIC: N/A

  • Technology Focus: Millimeter wave (MMW) technologies

  • Application Areas: Beam-steering antenna and imaging radar systems for aviation, transportation, and security use

  • Funding Sources: Product sales in military and commercial markets, and federal government grants and contracts

  • Number of SBIR grants:

    • From NSF: 3 Phase I grants, of which all three went to Phase II and one to Phase IIB

    • From other agencies: 45 Phase I’s and 19 Phase II’s

antennas in performance, but are highly compact, light weight, robust, with low power needs, without requirements for continuous calibration, and comparatively inexpensive. The antennas are smart; they can be set to provide multiple beams, each steerable. They offer a price advantage 100 times more favorable to buyers than traditional systems.

The antennas can help meet guidance needs for aircraft landing, missile seekers, and surveillance sensors. In civilian markets, they may also be useful for adaptive cruise control on cars, allowing cars to regulate their own speeds in response to traffic congestion. The advantage is that WaveBand’s antenna scans, enabling it to cover more area than the fixed-beam radar antennas in current adaptive cruise control systems, and, therefore, enabling it provide the car’s computer with more data on which to base its calculations. The millimeter wave radar beam can penetrate fog, rain, or snow, making it ideal for a variety of autonomous guidance and landing systems. WaveBand is working with both the automobile

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

industry and avionics suppliers to develop prototype systems. It is in the process of validating application of the antenna to the Navy fleet.

THE ROLE OF SBIR IN COMPANY FUNDING

When WaveBand spun-out of POC, it continued to work—in a subcontractor role—on some of the SBIR programs its personnel had been involved with prior to the spin-out. Later on, funding for the company came directly from SBIR, according to Ms.Quintana.

At the time of its take-over by SNC, WaveBand was receiving approximately half of its funding from SBIR grants. The remainder came primarily from studies and sales, particularly sales to defense agencies.

Earlier, WaveBand had pursued SBIRs that were mainly aimed at highly focused military objectives. But around 2000, the company made a decision to put increased attention on attracting commercially driven R&D to broaden the technology’s applications into nondefense markets, and to deemphasize the attention given to winning highly focused SBIR grants and contracts. It also went through a cycle of Phase 1, Phase 2, and Phase 2B NSF SBIR grants. More recently, it switched back to the highly focused defense SBIRs. According to Ms. Quintana, a result of this strategy was the development not only of technical prowess but also commercial strength for WaveBand.

According to WaveBand’s SBIR Commercialization Report to the Department of Defense, “the technologies that WaveBand has developed under Phase II SBIR research are all vital to our commercialization success. Each research project contributed to our commercial and Non-SBIR revenue.”

WaveBand received a total of 48 Phase 1 SBIR grants and 22 Phase 2 SBIR grants. It has received SBIR grants mainly from Navy, Army, Air Force, NASA, and DoE, and to a lesser extent from NSF. It received 2 Phase 1 STTR grants and 2 Phase 2 STTR grants. The amount the company has received in SBIR/STTR grants since 1996 totals $19.8 Million. Table App-D-8 summarizes the company’s SBIR/STTR grants in number and amount. Eligibility for SBIR grants has ended with WaveBand’s acquisition by SNC, a company with more than 500 employees.

BUSINESS STRATEGY, COMMERCIALIZATION, AND BENEFITS

WaveBand’s beam-steering antennas are expected to find about equal market applications in civilian and military applications. Civilian applications are expected to include landing systems for commercial jets and helicopters, as well as intelligent cruise control for automobiles. Military applications include landing systems for military aircraft, guidance for missile seekers, and surveillance systems for Navy ships.

WaveBand has sold test units of its MMW steering antenna to major auto-

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
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TABLE App-D-8 Waveband Corporation: SBIR/STTR Grants from NSF and Other Agencies

NSF Awards

Number

Amount ($)

Other Agency Awards

Number

Amount ($)

Total Number

Total Amount ($)

SBIR Phase I

3

274,946

SBIR Phase I

45

4,479,906

48

4,754,852

SBIR Phase IIa

2

892,291

SBIR Phase IIa

18

12,167,924

20

13,060,215

SBIR Phase IIB/Enhancements

1

249,961

SBIR Phase IIB/Enhancements

1

249,488

2

499,449

STTR Phase I

STTR Phase I

2

199,984

2

199,984

STTR Phase II

STTR Phase II

2

1,249,924

2

1,249,924

STTR Phase IIB/Enhancements

STTR Phase IIB/Enhancements

Totals

6

1,417,198

 

68

18,347,226

74

19,764,424

aExludes Phase IIB/Enhancement awards which are listed separately.

SOURCE: WaveBand Corporation.

motive companies and to a major manufacturer of avionics instrumentation. MMW steering antenna units have been installed on unmanned ground vehicles; a unit has been demonstrated for a railroad grade-crossing monitoring system; it has been demonstrated for bird detection along airport runways; and it has been demonstrated to “see through” various atmospheric conditions to facilitate aircraft landing.

WaveBand’s acquisition by SNC has reportedly not changed WaveBand’s technology direction. However, the acquisition has changed its funding situation. Without the ability to receive SBIR grants and contracts to support its research, WaveBand is expected to develop more of a product orientation, even as it attempts to stay on its R&D path. The parent company is expected to provide some direct R&D funding, it is including WaveBand as a subcontractor on military contracts, and it is expected to encourage the group to attract R&D funding from other sources. Accelerated growth of sales revenue is expected to provide another source of support for continued R&D.

WaveBand’s antennas offer performance benefits and cost advantages. They stand to increase automotive and aviation safety in civilian and defense applications and improve the effectiveness of a variety of military-defense systems.

VIEWS ABOUT THE SBIR PROGRAM AND ITS PROCESSES

Ms. Quintana made the following several observations about the program and its processes, some of which focused on the NSF program:

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×
Reporting Requirements

Each agency has its own reporting requirements, noted Ms. Quintana. “Uniformity in reporting would help.”

Financing Gap

The existence of a financing gap varies by agency SBIR program, according to Ms. Quintana. The Army bridges over the gap, making the transition from Phase I to Phase II relatively seamless. The Navy has a funding gap between phases of its program, making it very hard for small companies without alternative financing.

Requirements for Phase IIB Matching Funds

Air Force and Navy require that matching funds for Phase IIB grants be contingent on approval of the contract, as specified in a letter by the organization to provide the match. This causes trouble: One problem is that the timing is tricky. It requires that a contingency pledge be made not too soon and not too late—timing which may not suit the potential provider of the matching funds. Another problem is that many companies who would provide matching funds do not think in terms of contingencies—they decide either to provide the funding or not to provide it. In contrast, NSF does not require that the matching funds be expressed as a contingency. Therefore, companies are able to use a purchase order or sales revenue in the bank. NSF’s approach, according to Ms. Quintana, makes it easier for companies to comply with the Phase IIB matching funds requirement.

Solicitation Cycles

Unlike some of the other interviewees, Ms. Quintana does not believe that more solicitations each year would be advantageous. In fact, she sees more solicitations and more changes in topics as a potential burden, as company staff must be constantly monitoring the situation and trying to respond to the changes. Once yearly posting of topics allows companies more time to plan their research programs around the announced topics.

SUMMARY

This case study illustrates the role played by SBIR grants in the creation of a company as a spin-off of another small company. It also shows how the company used SBIR and other research funding sources to develop a portfolio of technologies attractive to a larger company that recently acquired it. The case illustrates the dual special roles played by highly targeted SBIR grants from defense agencies and by less targeted grants from NSF. It describes SBIR-funded innovations

Suggested Citation:"Appendix D: Selected Case Studies." National Research Council. 2008. An Assessment of the SBIR Program at the National Science Foundation. Washington, DC: The National Academies Press. doi: 10.17226/11929.
×

important from both a military standpoint and important in civilian markets. The company has used its SBIR funding to develop antennas that rely on an electronhole plasma grating to provide rapid beam steering and beam forming without the use of bulky mechanically moved reflectors, which are slow, and without electronically steered phase shifters, which are fast but expensive. WaveBand’s antennas reportedly offer a price advantage 100 times more favorable to buyers than traditional systems. Approximately half of WaveBand’s revenue in 2004 came from SBIR grants and contracts. The company provided helpful comments for improving the SBIR program.

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The Small Business Innovation Research (SBIR) program is one of the largest examples of U.S. public-private partnerships. Founded in 1982, SBIR was designed to encourage small business to develop new processes and products and to provide quality research in support of the many missions of the U.S. government, including health, energy, the environment, and national defense. In response to a request from the U.S. Congress, the National Research Council assessed SBIR as administered by the five federal agencies that together make up 96 percent of program expenditures.

This book, one of six in the series, reports on the SBIR program at the National Science Foundation. The study finds that the SBIR program is sound in concept and effective in practice, but that it can also be improved. Currently, the program is delivering results that meet most of the congressional objectives, including stimulating technological innovation, increasing private-sector commercialization of innovations, using small businesses to meet federal research and development needs, and fostering participation by minority and disadvantaged persons. The book suggests ways in which the program can improve operations, continue to increase private-sector commercialization, and improve participation by women and minorities.

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