4
Commercialization

4.1
CHALLENGES OF COMMERCIALIZATION

Commercialization of the technologies developed under the research supported by SBIR awards has been a central objective of the SBIR program since its inception. The program’s initiation in the early 1980s in part reflected a concern that American investment in research was not adequately deployed to the nation’s competitive advantage. Directing a portion of federal investment in R&D to small businesses was thus seen as a new means of meeting the mission needs of federal agencies while increasing the participation of small business and thereby the proportion of innovation that would be commercially relevant.

Congressional and executive branch interest in the commercialization of SBIR research has increased over the life of the program. A 1992 GAO study focused on commercialization in the wake of congressional expansion of the SBIR program in 1986. The 1992 reauthorization specifically “emphasize[d] the program’s goal of increasing private sector commercialization of technology developed through federal research and development and noted the need to “emphasize the program’s goal of increasing private sector commercialization of technology developed through Federal research and development.” The 1992 reauthorization also changed the order in which the program’s objectives are described, moving commercialization to the top of the list.

The term “commercialization” means “reaching the market,” which some agency managers interpret as “first sale”—that is, the first sale of a product in the market place, whether to public or private sector clients. This definition, however, misses significant components of commercialization that do not result in a discrete sale. It also fails to provide any guidance on how to evaluate the scale of



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4 Commercialization 4.1 CHALLENGES OF COMMERCIALIZATION Commercialization of the technologies developed under the research sup- ported by SBIR awards has been a central objective of the SBIR program since its inception. The program’s initiation in the early 1980s in part reflected a concern that American investment in research was not adequately deployed to the nation’s competitive advantage. Directing a portion of federal investment in R&D to small businesses was thus seen as a new means of meeting the mission needs of federal agencies while increasing the participation of small business and thereby the proportion of innovation that would be commercially relevant. Congressional and executive branch interest in the commercialization of SBIR research has increased over the life of the program. A 1992 GAO study focused on commercialization in the wake of congressional expansion of the SBIR program in 1986. The 1992 reauthorization specifically “emphasize[d] the program’s goal of increasing private sector commercialization of technology developed through federal research and development and noted the need to “emphasize the program’s goal of increasing private sector commercialization of technology developed through Federal research and development.” The 1992 reauthorization also changed the order in which the program’s objectives are described, moving commercialization to the top of the list. The term “commercialization” means “reaching the market,” which some agency managers interpret as “first sale”—that is, the first sale of a product in the market place, whether to public or private sector clients. This definition, how- ever, misses significant components of commercialization that do not result in a discrete sale. It also fails to provide any guidance on how to evaluate the scale of 

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7 COMMERCIALIZATION commercialization, an important element in assessing the degree to which SBIR programs successfully encourage commercialization. The metrics for assessing commercialization can also be elusive, and it is important to understand that it is not possible to completely quantify all com- mercialization from a research project: • The multiple steps needed after the research has been concluded mean that a single, direct line between research inputs and commercial outputs rarely exists in practice; cutting edge research is only one contribution among many leading to a successful commercial product. • Markets themselves have major imperfections, or information asymme- tries so high quality, even path breaking research, does not always result in com- mensurate commercial returns. • The lags involved in the timeline between an early stage research project and a commercial outcome mean that for a significant number of the more recent SBIR projects, commercialization is still in process, and sales—often substantial sales—will be made in the future. The current “total” sales are in this case just a “snapshot half way through the race,” and will require updating as the full impact of the award becomes apparent in sales. Yet the impact of SBIR awards needs to be qualified. Research rarely results in stand-alone products. Often, the output from an SBIR project is combined with other technologies. The SBIR technology may provide a critical element in developing a winning solution, but that commercial impact—the sale of the larger combined product—is not captured in the data. In some cases, the full value of an “enabling technology” that can be used across industries is difficult to capture. All this is to say that commercialization results must be viewed with caution, first because our ability to track them is limited (indeed it appears highly likely that our efforts at quantification of research awards may understate the true commercial impact of SBIR projects) and because an award and a successful project cannot lay claim to all subsequent commercial successes, though it may contribute to that success in a significant fashion. These caveats notwithstanding, it is possible to deploy a variety of assess- ment techniques to measure commercialization outcomes. In this chapter, we review a number of metrics related to commercialization outcomes for DoE SBIR projects. These include project status, sales and licensing revenues, further invest- ment, and employment effects. 4.2 PROJECT STATuS Information developed from the NRC Phase II survey shows that project status varied considerably. Almost all of the DoE respondents had completed Phase II. Just over a third had discontinued Phase III activity, although nearly half

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 SBIR AT THE DEPARTMENT OF ENERGY Products/Services/ Processes in Use Commercialization Underway Post Phase II Development Discontinued. After Sales/Funding Discontinued. No Sales/Funding Phase II Not Complete 0 5 10 15 20 25 30 Percent of Respondents FIGuRE 4-1 Status of Phase II projects. SOURCE: NRC Phase II Survey. 4-1 of these projects had already achieved sales or other funding. Seventeen percent of responding projects were still in development; of the remaining 42 percent in the commercialization phase, just over half were already in the market place (see Figure 4-1). 4.2.1 Project Discontinuation NRC Phase II Survey respondents cited a number of reasons for discontinu- ing their projects. When asked to identify the primary reason, most respondents indicated either that market demand was too small (32 percent of those discon- tinuing their projects), or that they had experienced technical failure or difficulties (25 percent). Not enough funding was indicated by another 12 percent. 4.3 SALES AND LICENSING While this NRC study uses multiple indicators to assess program outcomes, and multiple metrics for most indicators, sales and licensing revenues remain an important measure of program success. Just over half of NRC Phase II Survey respondents indicated that they had generated sales greater than $0 from their Phase II project. Averaged across all respondents (including those with no sales), the average amount of sales reported was $582,783 per project. (Of the respondents that reported positive sales, the average sales attributed to the Phase II project was approximately $1.1 million.) An additional $267,535 per project resulted from sales by licensees of the SBIR

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 COMMERCIALIZATION TABLE 4-1 Reasons for Discontinuing the Project Q: Did the reasons for discontinuing this project include Primary any of the following? Yes No Reason a. Technical failure or difficulties 41% 59% 25% b. Market demand too small 54% 46% 32% c. Level of technical risk too high 24% 76% 2% d. Not enough funding 53% 47% 12% e. Company shifted priorities 27% 73% 7% f. Principal investigator left 10% 90% 3% g. Project goal was achieved (e.g., prototype delivered for 49% 51% 5% federal agency use) h. Licensed to another company 10% 90% 7% i. Product, process, or service not competitive 31% 69% 5% j. Inadequate sales capability 10% 90% 0% k. Other (please specify): 7% 93% 2% SOURCE: NRC Phase II Survey. companies. Finally, another $48,231 per project resulted from other types of sales, including sales of the rights to technology, sales of spin-off companies, etc. 4.3.1 Skew Effects The distribution of sales and licensing outcomes is highly skewed: Four projects accounted for 47 percent of total reported sales. These four projects each generated more than $5.5 million in sales, with one project reporting sales of $17.5 million. It is important to emphasize that these figures are those reported by NRC Phase II Survey respondents who were asked about particular SBIR awards. The NRC review of the DoE SBIR program identified multiple other nonsurveyed SBIR-funded projects that received significant support from the DoE SBIR pro- gram and subsequently realized sales well in excess of $100 million. The Atlantia Offshore case study documents one in which cumulative product sales are over $500 million; Box 4-1 describes the case of a company (Science Research Laboratory, Inc.) whose SBIR-supported technology has driven sales of lasers ($250 million/year) used in the production of semiconductor chips. 4.3.2 Sales Expectations and Likely Future Sales While the NRC Phase II Survey breaks new ground in collecting data to support the NRC assessment, the amount of sales made—and indeed the number of projects that generate sales—are inevitably undercounted in a snapshot survey

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0 SBIR AT THE DEPARTMENT OF ENERGY Box 4-1 Commercialization by Science Research Laboratory, Inc. Science Research Laboratory, Inc. (SRL) is a high technology research and development corporation founded in 1983 by Drs. Jonah Jacob and Joseph Mangano, experts in laser technology and plasma science. The company’s primary objective is to develop commercial products based upon research programs con­ ducted for the United States government. SRL currently employs 20 individuals, more than half of whom are scientists holding doctorate degrees from some of the world’s most distinguished universities. This skilled group of researchers gives the company a broad technical base, which has resulted in the development of a wide spectrum of technologies with applications in both the government and commercial sectors. Under four Department of Energy and Department of Defense SBIR awards between 1989 and 1993, Science Research Laboratory, Inc. (SRL) of Somerville, Massachusetts developed a cluster of solid­state pulsed power technologies that made excimer lasers, for the first time, a commercially viable tool for the Deep Ultra­Violet lithography now used in writing current­generation integrated circuits onto computer chips. Specifically, these SBIR­developed technologies: • Eliminated missing laser pulses observed with the older (“thyratron switch”) technology, thereby stabilizing the laser power, improving dose control to the semi­ conductor wafer, and greatly improving chip yield; and • Increased the lifespan of the laser driver by a factor of 100 and the lifetime of the laser head by a factor of 10­20, thereby reducing the annual maintenance costs of the laser fivefold. The use of excimer lasers has enabled a reduction in the critical dimensions of the circuits from 0.35 microns to 0.25 microns with the existing laser technol­ ogy, and will ultimately lead to critical dimensions of below 0.1 microns with next generation laser technology. The result has been a significant increase in the computing power of virtually every military and commercial system developed in recent years. SRL commercialized these technologies by licensing Cymer, Inc., which went public in 1996 in part based on these technologies. As a direct result of these technologies, Cymer now produces and sells approximately $250 million annually in excimer lasers to Canon, Nikon, and ASML for use in chip production around the world and has a market share of over 80 percent. SOURCE: Department of Defense SBIR Program.

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 COMMERCIALIZATION TABLE 4-2 Recipients of Product Sales Percentage Recipient of DoE SBIR Product Reporting Domestic private sector 76 Department of Defense (DoD) 2 Prime contractors for DoD or NASA 1 NASA 1 Agency that awarded this Phase II 0 Other federal agencies 1 State or local governments 0 Export markets 14 Other 1 SOURCE: NRC Phase II Survey. taken at a single point in time. As noted in Box 1-1, based on successive data sets collected from NIH SBIR award recipients, it is estimated that total sales from all responding projects will likely be on the order of 50 percent greater than can be captured in a single survey.1 This underscores the importance of follow-on research based on the now-established survey methodology. 4.3.3 Licensing Sales resulting from licensing are not widespread among NRC Phase II Survey projects—only seven projects reported sales from licensing. Their average sales were over $6 million per project. These sales skewed the data for overall average sales by licensing per DoE Phase II Award, which averaged approxi- mately $270,000 for all responding projects. 4.3.4 Customers NRC Phase II Survey respondents were asked to identify the types of cus- tomers for their sales. For DoE respondents, the private sector dominated sales, with over three-fourths of sales coming from the domestic private sector and approximately 14 percent from export markets. DoE data indicates that 86 percent of sales were made to the private sector. Notably, none of the surveyed projects made any sales to DoE itself, suggesting that for SBIR at least, DoE does not operate a procurement-type program like DoD and NASA. 1Data from NIH indicate that a subsequent survey taken two years later would reveal very sub- stantial increases in both the percentage of firms reaching the market, and in the amount of sales per project. See National Research Council, An Assessment of the Small Business Innovation Research Program at the National Institutes of Health, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2008.

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 SBIR AT THE DEPARTMENT OF ENERGY TABLE 4-3 Responses Concerning Marketing Activity for Phase II Project Percent Need Not Marketing activity Planned Assistance Underway Completed Needed Preparation of marketing plan 4 3 15 44 34 Hiring of marketing staff 3 5 9 22 61 Publicity/advertising 9 6 26 29 30 Test marketing 8 5 20 18 50 Market research 5 5 22 34 33 Other 0 0 3 3 39 SOURCE: NRC Phase II Survey. 4.3.5 Marketing Despite the congressional emphasis and DoE focus on commercialization, many DoE firms do not view marketing as a necessary component of the commer- cialization process. Thirty-four percent of DoE respondents to the NRC Phase II Survey reported that a marketing plan was unneeded, 61 percent hired no addi- tional marketing staff, 30 percent felt publicity or advertising were unnecessary, 50 percent believed test marketing was unneeded, 33 percent had no intention of engaging in market research, and 39 percent believed other types of marketing were unnecessary (Table 4-3). This aspect of award winner activities could bear further analysis, particu- larly through further work on the relationship between marketing activities and outcomes. 4.3.6 Additional Development Funding Over 60 percent of the NRC Phase II Survey’s DoE respondents received or invested additional developmental funding for the Phase II projects targeted in the survey.2 Table 4-4 shows the distribution among the various sources of Phase III development funding. The amounts shown are the averages among all DoE respondents. On the average, approximately $363,000 was derived from non-SBIR fed- eral funds, nearly $225,000 from other domestic companies, $157,000 from one’s own company (including borrowed money), $125,000 from foreign private investment, $37,000 from other private equity, and $13,000 from personal funds. The average amount of funding from other sources was minimal: $2,000 from state or local governments and $817 from colleges or universities. Altogether, the average total amount of additional development funding received by these DoE SBIR firms was approximately $920,000. 2NRC Phase II Survey, Question 22.

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 COMMERCIALIZATION TABLE 4-4 Sources of Phase III Funding for Further Development, Following the Phase II Project Source Average Phase III Funding ($) Non-SBIR federal funds 362,968 Other Private Sources 1) Private U.S. Venture Capital 0 2) Private Foreign Investment 124,522 3) Other Private 36,908 4) Other Domestic Private Company 224,358 Other Domestic Sources 1) State or Local Govt. 2,025 2) College or University 817 Other Not Reported 1) Own Company 156,621 2) Personal Funds 13,216 SOURCE: NRC Phase II Survey. The distribution of projects by funding source was somewhat different: About 40 percent reported raising internal company funds, and approximately 20 percent generated funds from other private companies and from federal non-SBIR sources (though not DoE). So while federal funding and other private companies were the largest sources of funding, they were relatively more concentrated in fewer firms. Box 4-2 How SBIR Companies Commercialize— Findings from the Case Studies Companies interviewed for this study illustrate some of the many approaches to commercialization taken by DoE SBIR recipient firms. The case studies of these companies can be found in Appendix D. One company marketed the technology developed with its lone project, sub­ contracted production, and achieved huge revenues (Atlantia). Another marketed and manufactured its own product (IPIX), eventually going public. Three com­ panies are manufacturing products based on their SBIR work, while they seek larger partners in order to expand markets (NanoScience, NexTech, Thunderhead Engineering). Other companies achieve commercialization by spinning off (Creare) or licensing (Eltron) their SBIR technologies. Yet another used SBIR research to create a new market—in one instance for its core technology (Diversified Technolo­ gies, Inc.) and, in another, for an R&D contracting business (PPL). Although some case study companies are currently dependent on SBIR as a major source of their revenues (Airak, Creare, NanoScience), all are actively engaged in commercialization, selling either products or services. Most companies use patents to protect their intellectual property.

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 SBIR AT THE DEPARTMENT OF ENERGY 4.4 FuRTHER INVESTMENT: PHASE III AT DOE As with other agencies’ SBIR winners (and as in early stage technology development in general) DoE SBIR Phase II winners face formidable challenges in moving from the research phase to production. The period in which a com- pany must navigate the challenge of transforming a scientific breakthrough into a market-ready prototype is often referred to as the “Valley of Death.” 3 On one side of this valley stand the scientists and technologists—the innovators undertaking the research and development work. Prior to reaching the “valley,” they were funded through corporate or government research funds or—more rarely—from personal sources. On the other side stand innovation managers and investors. Experts in financing and management of business enterprises, they possess devel- opment funds and expertise for turning a market-ready prototype into a validated business. But who funds the work needed to cross the Valley of Death? The most likely possibilities are venture capitalists, large corporations, and the federal government. At other agencies, each has played an important role. However, at DoE, it appears that none has had a significant impact on Phase III activity. Instead, firms have tried to navigate the Valley of Death using internal resources or other contracts. 4.4.1 DoE SBIR and Venture Capital (VCs) In response to the NRC Phase II Survey, no further investment was reported from U.S. venture capital sources. Various interpretations of this absence are possible. The most obvious is that no respondents were attractive candidates for ven- ture capital investment. This however appears to be an oversimplification. In fact, three distinct factors appear to be at work. • First, relatively few VC firms operate in the seed capital space occupied by most SBIR awards. In the aggregate during the study period less than 5 percent of venture funding went to seed stage firms in all industries. Only at NIH, where VC activity in the biotech and other medical sectors has been substantial but appears to be a special case, have VC’s played an important role in commercialization. • Second, as noted earlier, VC interest in energy-related investments has been minimal, for many reasons. Less than 7 percent of VC investment during the study period went to energy-related companies at all stages of development. Most venture firms would rather invest in an innovation that has at least some proven 3Four case study firms raised the “Valley of Death” issue: Airak, Creare, and PPL. See Appendix D. See also the case study of Pearson Knowledge Technologies in National Research Council, An Assess- ment of the Small Business Innoation Research Program at the Department of Defense, Washington, D.C.: The National Academies Press, 2007 Prepublication.

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 COMMERCIALIZATION track record, in order to minimize risk.4 As a number of companies interviewed for this study pointed out, the venture capital market is particularly averse to funding technology projects in the early stages.5 • Third, firms that seek SBIR funding may be self-selected among small technology companies as ones that are less prepared to relinquish control to out- side investors. Some of the case studies support this view.6 Recent changes in the attitude of VC firms toward energy, and apparently improved understanding among some VC firms that SBIR can help to identify especially promising technologies, may mean that in the future VC’s will play a more important role at DoE. These changes also indicate that it might make sense for DoE to consider how it might help to attract VC funding and other sources of finance into the Phase III activities of its SBIR awardees. Some firms, such as NanoScience, would clearly welcome this.7 4.4.2 Equity Investments from Large Corporations About 20 percent of responding projects identified additional development funding from other U.S. corporations (though no size was identified). On average, these companies provided an injection of about $675,000 per project. Three firms interviewed for this study—Creare, Pearson, Diversified Tech- nologies, Inc.—noted, however, that private companies are unlikely to provide the type of funding offered by SBIR due to the high risk nature of the work. Creare, for example, reported being approached by a large multinational interested in an SBIR-developed technology. The company offered to assist with marketing and distribution once the technology had been fully developed into a product; however, the company was unwilling to offer any of the development funds required to get it from a prototype to production. These firms were looking for patient investors able to take a longer-term view of R&D, yet there was a lack of optimism that this role would be filled by a large company under pressure for fast returns (PPL). 4.4.3 Other Resources Moving from a Phase II prototype to product development and commer- cialization requires resources well beyond what most SBIR firms could muster 4See, for example, the case study of Airak in Appendix D. See also the case study of Pearson Knowledge Technologies in National Research Council, An Assessment of the Small Business Innoa- tion Research Program at the Department of Defense, op. cit. 5See case studies of Eltron, IPIX, and NanoScience in Appendix D. See also the case study of Pearson Knowledge Technologies in National Research Council, An Assessment of the Small Business Innoation Research Program at the Department of Defense, op. cit. 6See the case studies of Creare and Diversified Technologies, Inc., in Appendix D. 7See also National Research Council, The Adanced Technology Program: Assessing Outcomes, Charles W. Wessner, ed., Washington, D.C.: National Academy Press, 2001.

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 SBIR AT THE DEPARTMENT OF ENERGY internally.8 And banks were viewed as a poor option because, as the firms inter- viewed for this study indicated, they know little about the business of small, R&D-intensive companies (NanoScience), and sought collateral beyond expecta- tions of future knowledge and technology (Eltron). 4.4.4 Matching Funds and Cost Sharing The limits of external funding are reflected earlier in the development pro- cess as well. Fifty-eight percent of NRC Phase II Survey respondents reported no matching funds, co-investment, or other types of cost sharing for their Phase II award. Thirty-one percent provided their own cost-sharing funds, 17 percent reported at least some cost-sharing funds from other companies, 5 percent received cost-sharing funds from a federal agency, 2 percent received some cost- sharing funds from venture capital, and less than 1 percent received cost-sharing funds from an angel or other private investment source. 4.4.5 Non-SBIR Federal Funding With respect to government markets, it appears that the DoE SBIR program is focused almost exclusively on the private sector: Of firms responding to the NRC Phase II Survey that had some sales, 90 percent reported sales either to the U.S. private sector or to expert markets. Only 4 percent reported sales to the federal government, and none to DoE. Thus, in SBIR terms, DoE is best understood as being a nonprocurement agency: It generally does not purchase the results of SBIR-funded research. While there may be more opportunities to advertise the results of SBIR research within DoE and to the National Laboratories in particular, government markets appear to remain relatively unimportant for most DoE SBIR firms. DoE’s SBIR firms also see important limitations on federal funding. Accord- ing to some companies interviewed for this study, government grants will typi- cally help a company up to the development of a workable prototype, but not through the development of a scalable production capability and into the market- ing phase (Airak, Diversified Technologies, Inc.). 4.5 EMPLOYMENT EFFECTS Data from the NRC Phase II Survey indicates that SBIR support directly resulted in noticeable though minor employment growth among DoE respon- dents. On the average, approximately 1.5 employees were hired because of the SBIR award: 49 percent of respondents reported hiring one to five employees; 8National Research Council, SBIR and the Phase III Challenge of Commercialization, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2007.

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7 COMMERCIALIZATION 46 percent reported hiring no additional employees. Five percent reported hiring six to twenty employees. Similarly, firms on average retained 1.5 employees as a result of the Phase II award: 52 percent reported retaining one to five employees, 43 percent reported no additional employees retained, and 3 percent reported retaining 6 to 20 employees. Respondents were also asked to compare their employment at the time of the Phase II award with current employment at the time of the survey. On average, respondents indicated growth from 32 to 54 employees. Although 30 percent of responding firms had five or fewer employees at the time of Phase II proposal submission, that number had declined to 17 percent by the time of the survey. Conversely, the percentage of respondents with more than 20 employees grew from 28 percent at the time of Phase II proposal submission to 36 percent at the time of the survey. Although this evidence does not prove that SBIR activ- ity caused this employment growth, it does indicate that responding companies tended to expand after engaging in Phase II activity. 4.6 PHASE I COMMERCIALIZATION While most commercialization attention has justifiably focused on Phase II projects, it is important to note that some firms have been successful commercial- izing right from Phase I. The NRC Phase I survey addressed firms that did not win Phase II awards. 4.6.1 Commercialization Resulting from the Phase I Projects Naturally, most Phase I-only projects did not reach the marketplace. Many failed for reasons discussed below. But some were successful. Table 4-5 describes the companies’ intentions with respect to the commercialization of their Phase I projects. TABLE 4-5 Intentions with Respect to Commercialization Number of DoE DoE Percent for all Respondents Percent Agencies Combined No commercialization planned 46 30 33 Software 9 6 16 Hardware 63 41 32 Process technology 45 29 20 New/improved service capability 12 8 11 Research tool 12 8 15 Drug or biologic 0 0 4 Educational materials 0 0 3 SOURCE: NRC Phase I Survey.

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 SBIR AT THE DEPARTMENT OF ENERGY The distribution for DoE is similar to the distribution for all agencies com- bined. Percentages exceed 100 percent because respondents were asked to select all choices that applied. Respondents were also asked whether any sales, which incorporated the tech- nology developed during the Phase I project, had actually occurred. The results are shown in Table 4-6. The term “other sales” in Table 4-6 refers to sales of rights to technology, sales of spin-off companies, etc. Once again, the distribution for DoE is similar to the distribution for all agencies combined. For a large percentage of projects (66 percent) no sales were expected. The average amount of sales reported per project was $38,794, which is sig- nificantly less than the average sales for the Phase II projects reported in Section 4.3 ($582,783). Of the 18 Phase I projects for which positive sales were reported, the average sales were approximately $334,000, again significantly less than for Phase II. An additional $3,871 per project resulted from sales by licensees of the SBIR companies. Finally, another $1,878 per project resulted from other types of sales, including sales of the rights to technology, sales of spin-off companies, etc. The distribution of commercialization outcomes was even more skewed than for Phase II: 5 projects accounted for 82 percent of total reported sales. 4.6.2 Follow-on Development Funding Resulting from the Phase I Projects Nineteen percent of respondents found additional developmental funding for the Phase II projects targeted in the survey. This figure is similar to the percent- age of Phase II projects that believed the project would have gone ahead without Phase II funding, providing additional empirical support for the view that Phase II funding was a critical component in the “go” decision for about four-fifths of SBIR projects. TABLE 4.6 Whether or Not the Phase I Project Led to Sales Number of DoE DoE Percent for all Respondents Percent Agencies Combined No sales to date And not expected 103 66 65 But sales expected 23 15 15 But outcome in use 5 3 5 Sales have occurred Products 14 9 9 Processes 0 0 1 Services 6 4 6 Other sales 1 1 2 Licensing fees 2 1 2 SOURCE: NRC Phase I Survey.

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 COMMERCIALIZATION Table 4-7 shows the distribution among the various sources of Phase III development funding. Altogether, the average total amount of additional develop- ment funding received by these DoE SBIR Phase I projects was approximately $212,000, again considerably less than the corresponding amount for the Phase II projects (Section 4.3.6). 4.6.3 Other Benefits of Phase I-only Projects Most of the Phase I-only projects achieved no commercialization or Phase III developmental funding, but some of these produced noncommercial benefits, summarized in Table 4-8. As shown in Table 4-8, a number of benefits ensued. Once again the distribu- tion for DoE Phase I projects is similar to the distribution for all agencies com- TABLE 4.7 Sources of Phase III Funding for Further Development, Following the Phase I Project Source Average Phase III Funding ($) Non-SBIR federal funds 165,077 Other Private Sources 1) Private U.S. Venture Capital 0 2) Private Foreign Investment 7,303 3) Other Private 258 4) Other Domestic Private Company 23,452 Other Domestic Sources 1) State or Local Govt. 2,406 2) College or University 32 Other Not Reported 1) Own Company 13,052 2) Personal Funds 742 SOURCE: NRC Phase I Survey. TABLE 4.8 Noncommercial Benefits of the Phase I Projects. Number Percent for of DoE DoE all Agencies Respondents Percent Combined Awarding agency obtained useful information 88 57 59 Firm improved its knowledge of the technology 138 89 83 One or more valuable employees were hired 52 34 27 Public benefits have or will accrue 45 29 17 This Phase I was essential to firm’s founding or survival 17 11 13 No noncommercial benefits 9 6 8 SOURCE: NRC Phase I Survey.

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70 SBIR AT THE DEPARTMENT OF ENERGY bined. In some cases—firm foundation or survival—the relatively small Phase I award clearly has an impact on the firm. The government also finds the results of the Phase I awards valuable. For 37 percent of the responding Phase I projects, the company received additional government grants or contracts related to the technology examined in Phase I. Table 4-9 shows the breakdown. 4.7 MuLTIPLE-AWARD WINNERS While commercialization is not the only metric to judge the activities either of an agency program or a recipient firm, it is one of the core objectives of the program. Data collected in the course of the NRC assessment does provide some important information. First, data from the DoD commercialization database indicates that firms winning the largest number of awards commercialize more, on a per project basis, than do those winning the smallest number of awards (See Table 4-10.) TABLE 4.9 Government Grants and Contracts Subsequent to the Phase I Project DoE Percent for all Percent agencies combined At least one SBIR Phase I received in this technology 26 22 At least one related Phase II—Although the subject 14 14 project itself did not advance to Phase II Subsequent federal non-SBIR contracts or grants in this 13 12 technology SOURCE: NRC Phase I Survey. TABLE 4-10 Commercial Results from Multiple-Award Winners Average Number Number of Commercialization of Projects Projects with of Projects with Number of Phase II Number in CCR Award Years Award Years Prior SBIR per Firm* of Firms Database Prior to 2004 to 2004 ($) ≥125 projects 5 941 823 2,067,719 ≥75 and <110 (no firms had 5 485 411 1,117,325 between 111 and 124 projects) ≥50 and <75 17 1,067 945 4,103,125 ≥25 and <50 77 2,692 2,330 1,710,140 ≥15 and <25 101 1,858 1,535 1,375,061 >0 and <15 2715 8,101 6,243 1,300,886 SOURCE: Data taken from the DoD Company Commercialization (CCR) Database.

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7 COMMERCIALIZATION Second, the DoE case studies indicate that commercialization make take forms other than generating sales. Creare, one of the most frequent DoE winners, has been highly successful in forming spin-out companies to undertake commer- cialization of specific products developed with support from SBIR. Third, data from the NRC Phase II Survey indicates that the largest com- mercial successes at DoE—generating more than $5 million in revenues—were all created by firms with at least 20 employees, although it is also worth noting that none came from firms with more than 300 employees.