SBIR grants are intended to help fledgling innovation companies get off the ground. During his tenure at his prior employer, the company grew from four to thirty-five employees.. Engineers were unable to follow-up on Phase II successes because funds were diverted to hiring new researchers who were to bring in new Phase I and Phase II awards, especially as ideas moved outside of the realm of the company’s current knowledge base. The lack of focus, leverage between contracts, and large competition for internal resources became a significant issue for Duncan, and was a significant contributor to his departure.

With this earlier experience serving as an object lesson, Airak’s management is reportedly fully devoted to the idea of commercializing products, and relying on future product revenues to grow the company. There is a gap here, though, that makes the transition to commercialization difficult for some firms. Government grants will typically help a company up to the production phase, but not into the marketing phase. Venture capitalists would rather invest in an innovation that has at least some proven track record. The hazards of this funding gap (the “valley of death”), in which an innovation may remain stuck if the company is unable, on its own, to market the product are well understood. To that end, the interviewee commented in favor of the ability to devote at least some fraction of the SBIR awards to marketing efforts, though he does understand the government’s reluctance to become involved in the marketing matters of private companies.

External, nongovernment funding is considered a very important asset by Airak. One source of support is through the Virginia Tech Intellectual Property (VTIP) contract. While a graduate student at Virginia Tech, Airak’s founder developed the dissolved oxygen sensor that was to earn the company its first SBIR award. VTIP, which owns rights to a related innovation, has licensed the product exclusively to Airak, in exchange for a 2-percent ownership of the company. As the company grows, VTIP will also receive a 2-percent share of the profits. Banks are also more likely to be willing to provide business loans to companies that have received a Phase II grant. The institutions reportedly recognize that a Phase II award is a good indicator of potential marketability of an innovation, and are thus more willing to provide funds that may be used for the commercialization of that product.

THE SBIR PROCESS

As stated earlier, Paul Duncan first became aware of the SBIR program through his previous employer. He was thus well aware of the application and granting procedures when he applied for the Phase I grant that was to serve as the launching platform for Airak.

Originally, Airak applied for a Phase I grant from pretty much all of the agencies, hoping that someone would find the dissolved oxygen sensor innovation worth further investigation. Now, however, the company focuses mainly on the Department of Energy and the Department of Defense, especially the Navy, for



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