AN ASSESSMENT OF THE SBIR PROGRAM AT THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

Committee for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program

Policy and Global Affairs

Charles W. Wessner, Editor

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

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Committee for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program Policy and Global Affairs Charles W. Wessner, Editor

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the Councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study was supported by Contract/Grant No. DASW01-02-C-0039 between the Na- tional Academy of Sciences and U.S. Department of Defense, NASW-03003 between the National Academy of Sciences and the National Aeronautics and Space Administration, DE-AC02-02ER12259 between the National Academy of Sciences and the U.S. Depart- ment of Energy, NSFDMI-0221736 between the National Academy of Sciences and the National Science Foundation, and N01-OD-4-2139 (Task Order #99) between the National Academy of Sciences and the U.S. Department of Health and Human Services. The con- tent of this publication does not necessarily reflect the views or policies of the Department of Health and Human Services, nor does mention of trade names, commercial products, or organizations imply endorsement by the U.S. Government. The material is based upon work supported by NASA under award No(s) NNX07AJ53G. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the National Aeronautics and Space Administration. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13: 978-0-309-12442-3 International Standard Book Number-10: 0-309-12442-5 Limited copies are available from the Policy and Global Affairs Division, National Re- search Council, 500 Fifth Street, N.W., Washington, DC 20001; 202-334-1529. Additional copies of this report are available from the National Academies Press, 500 Fifth Street, N.W., Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu. Copyright 2009 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examina- tion of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the Na- tional Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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Committee for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program Chair Jacques S. Gansler (NAE) Roger C. Lipitz Chair in Public Policy and Private Enterprise and Director of the Center for Public Policy and Private Enterprise School of Public Policy University of Maryland David B. Audretsch Charles E. Kolb Distinguished Professor and President Ameritech Chair of Economic Aerodyne Research, Inc. Development Henry Linsert, Jr. Director, Institute for Development CEO Strategies Columbia Biosciences Corporation Indiana University W. Clark McFadden Gene Banucci Partner Executive Chairman Dewey & LeBoeuf, LLP ATMI, Inc. Duncan T. Moore (NAE) Jon Baron Kingslake Professor of Optical Executive Director Engineering Coalition for Evidence-Based Policy University of Rochester Michael Borrus Kent Murphy Founding General Partner President and CEO X/Seed Capital Luna Innovations Gail Cassell (IOM) Linda F. Powers Vice President, Scientific Affairs and Managing Director Distinguished Lilly Research Scholar Toucan Capital Corporation for Infectious Diseases Tyrone Taylor Eli Lilly and Company President Elizabeth Downing Capitol Advisors on CEO Technology, LLC 3D Technology Laboratories Charles Trimble (NAE) M. Christina Gabriel CEO, retired Director, Innovation Economy Trimble Navigation The Heinz Endowments Patrick Windham Trevor O. Jones (NAE) President Founder and Chairman Windham Consulting Electrosonics Medical, Inc. 

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PROJECT STAFF Charles W. Wessner Sujai J. Shivakumar Study Director Senior Program Officer McAlister T. Clabaugh Adam H. Gertz Program Associate Program Associate David E. Dierksheide Jeffrey C. McCullough Program Officer Program Associate RESEARCH TEAM Zoltan Acs David H. Finifter University of Baltimore The College of William and Mary Alan Anderson Michael Fogarty Consultant University of Portland Philip A. Auerswald Robin Gaster George Mason University North Atlantic Research Robert-Allen Baker Albert N. Link Vital Strategies, LLC University of North Carolina Robert Berger Rosalie Ruegg Robert Berger Consulting, LLC TIA Consulting Grant Black Donald Siegel University of Indiana South Bend University of California at Riverside Peter Cahill Paula E. Stephan BRTRC, Inc. Georgia State University Dirk Czarnitzki Andrew Toole University of Leuven Rutgers University Julie Ann Elston Nicholas Vonortas Oregon State University George Washington University Irwin Feller American Association for the Advancement of Science i

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POLICY AND GLOBAL AFFAIRS Ad hoc Oversight Board for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program Robert M. White (NAE), Chair University Professor Emeritus Electrical and Computer Engineering Carnegie Mellon University Anita K. Jones (NAE) Mark B. Myers Lawrence R. Quarles Professor of Senior Vice President, retired Engineering and Applied Science Xerox Corporation School of Engineering and Applied Science University of Virginia ii

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Contents PREFACE xiii SUMMARY 1 I. INTRODUCTION 11 1.1 SBIR Creation and Assessment, 11 1.2 SBIR Program Structure, 12 1.3 SBIR Reauthorizations, 13 1.4 Structure of the NRC Study, 14 1.5 SBIR Assessment Challenges, 15 1.6 SBIR at NASA, 20 1.7 Assessing SBIR at NASA, 21 1.7.1 Surveys of NASA SBIR Award-recipient Companies, 21 1.7.2 Case Studies (Appendix E), 23 1.8 Outline of the Remainder of the Report, 24 II. FINDINGS AND RECOMMENDATIONS 26 III. APPLICATIONS AND AWARDS AT NASA 42 3.1 Introduction, 42 3.2 Phase I Applications, 42 3.2.1 Phase I Awards, 42 3.2.2 Phase I Awards by State, 44 3.2.3 Phase I Awards by Company, 45 ix

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x CONTENTS 3.2.4 Phase I Applications and Awards: Woman- and Minority- owned Firms, 47 3.3 Phase II Awards, 49 3.3.1 Phase II Awards by State, 50 3.3.2 Phase II Awards by Company, 50 3.3.3 Phase II Applications and Awards: Woman- and Minority- owned Firms, 51 IV. SBIR PROGRAM OUTCOMES 55 4.1 Introduction, 55 4.1.1 Compared to What?, 56 4.1.2 Multiple Metrics, 57 4.1.3 NASA’s Changing Program Priorities, 60 4.2 Commercialization: A Long-time Program Priority, 60 4.2.1 Assessing Commercialization, 62 4.2.2 Commercialization Indicators and Benchmarks, 62 4.2.3 Additional Investment Funding, 70 4.2.4 Small Company Participation and Employment Effects, 73 4.2.5 Sales of Equity and Other Company-level Activities, 75 4.2.6 Commercialization: Conclusions, 77 4.3 Agency Mission, 78 4.3.1 Procedural Alignment of SBIR Programs and Agency Mission at NASA, 78 4.3.2 Program Outcomes and Agency Mission, 81 4.3.3 Conclusions: Agency Mission, 89 4.4 Support for Small, Woman-owned, and Disadvantaged Businesses, 91 4.4.1 Support for Woman- and Minority-owned Firms, 91 4.4.2 Small Business Support, 92 4.5 SBIR and the Expansion of Knowledge, 94 4.5.1 Patents, 95 4.5.2 Scientific Publications, 95 4.5.3 Licensing, 97 4.5.4 Partnerships of Small Firms with Other Companies and Investors, 98 4.5.5 Interactions Among Small Firms and Universities, 98 4.5.6 Assessing Knowledge Expansion, 101 4.5.7 Conclusions on SBIR’s Knowledge Impact, 102 4.6 Conclusions, 102 4.6.1 Commercialization, 102 4.6.2 Agency Mission, 103 4.6.3 Support for Woman- and Minority-owned Businesses, 103 4.6.4 Support for the Advancement of Scientific and Technical Knowledge, 103

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xi CONTENTS V. PROGRAM MANAGEMENT 105 5.1 Introduction: Assessing SBIR in a Restructuring NASA, 105 5.2 Managing SBIR at NASA, 106 5.2.1 Guiding Principles, 106 5.2.2 Program Administration, 106 5.2.3 Administrative Budget, 107 5.2.4 FY2006 Reforms, 107 5.3 The Awards Process, 108 5.3.1 Selecting SBIR Topics, 109 5.3.2 Agency Outreach, 110 5.3.3 Submission, Evaluation, and Selection, 111 5.3.4 Funding “Gaps”, 114 5.3.5 Other Aspects of Award Selection, 115 5.4 Beyond Phase II—The Transition to Phase III, 117 5.4.1 No Phase III Transition Support, 118 5.4.2 Training Programs for Agency Phase I and Phase II Awardees, 118 5.4.3 Take-up Within the Agency, 119 5.5 Program Evaluation, 119 5.5.1 The Challenge of Evaluation, 119 5.5.2 Resource Constraints, 120 5.5.3 Phase III, 121 5.5.4 Assessing Outreach, 121 5.5.5 Assessing Alignment with Agency Mission, 122 5.5.6 SBIR Success Stories, 123 5.5.7 Evaluation and Assessment: Conclusions, 124 5.6 Commercialization Support, 125 5.6.1 NASBO and Technology Incubators, 126 5.6.2 Center-level Activities and Practices, 128 5.6.3 Access of SBIR Firms to Prime Contractors, 129 5.7 Support for Agency Mission Alignment, 130 5.8 The Regional Dimension, 131 5.8.1 Geography and the Regional Distribution of Awards, 131 5.8.2 Complex Management Challenges, 131 5.8.3 The Limits of the Traditional External Network, 133 5.8.4 Spin-in Challenges, 136 Annex to Chapter 5: SBIR at the NASA Centers, 140 5.9 Ames Research Center (ARC)—San Jose, CA, 140 5.10 Dryden Flight Research Center (DFRC)—Edwards, CA, 141 5.11 Glenn Research Center (GRC)—Cleveland, OH, 142 5.12 Goddard Space Flight Center (GSFC)—Greenbelt, MD, 142 5.13 Jet Propulsion Laboratory (JPL)—Pasadena, CA, 144 5.14 Johnson Space Center (JSC)—Houston, TX, 145

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xii CONTENTS 5.15 Kennedy Space Center (KSC)—Florida, 146 5.16 Langley Research Center (LaRC)—Hampton, VA, 147 5.17 Marshall Space Flight Center (MSFC)—Huntsville, AL, 148 5.18 Stennis Space Center (SSC)—Mississippi, 149 APPENDIXES A NASA SBIR Program Data 153 B NRC Phase II Survey and NRC Firm Survey 165 C NRC Phase I Survey 190 D NRC Project Manager Survey 198 E Case Studies 218 AeroSoft, Inc., 222 ARACOR, 232 Creare, Inc., 238 Deformation Control Technology, Inc. (DCT), 247 Essential Research, Inc., 255 Luna Innovations, Inc., 265 Mainstream Engineering Corporation, 279 Space Photonics, Inc. (SPI), 285 Technology Management, Inc., 290 TiNi Alloy, 297 F Bibliography 304

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Preface Today’s knowledge economy is driven in large part by the nation’s entre- preneurs who see opportunities and are willing and able to take on risk to bring new welfare-enhancing, wealth-generating technologies to the market. Yet, while innovation in areas such as genomics, bioinformatics, and nanotechnology pres- ent new opportunities, converting these ideas into innovations for the market involves substantial challenges.1 The American capacity for innovation can be strengthened by addressing the challenges faced by entrepreneurs. Public-private partnerships are one means to help entrepreneurs bring new ideas to market. 2 The Small Business Innovation Research (SBIR) program is one of the larg- est examples of U.S. public-private partnerships. Founded in 1982, SBIR was de- signed to encourage small business to develop new processes and products and to provide quality research in support of the many missions of the U.S. government. By including qualified small businesses in the nation’s research and development (R&D) effort, SBIR grants are intended to stimulate innovative new technolo- gies that help agencies meet the specific R&D needs of the nation in many areas, including health, the environment, and national defense. 1 See Lewis M. Branscomb, Kenneth P. Morse, Michael J. Roberts, and Darin Boville, Managing Technical Risk: Understanding Priate Sector Decision Making on Early Stage Technology Based Projects, Washington, DC: Department of Commerce/National Institute of Standards and Technol- ogy, 2000. 2 For a summary analysis of best practice among U.S. public-private partnerships, see National Research Council, Goernment-Industry Partnerships for the Deelopment of New Technologies: Summary Report, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2002. xiii

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xi PREFACE SBIR REAUTHORIZATION AND CONGRESSIONAL REQUEST FOR REVIEW As a part of the 2000 reauthorization of the SBIR program, Congress called for a review of the SBIR programs of the agencies that account collectively for 96 percent of program funding.3 The five agencies meeting this criterion, by size of program, are the Department of Defense (DoD), The National Institutes of Health (NIH), the National Aeronautics and Space Administration (NASA), the Department of Energy (DoE), and the National Science Foundation (NSF). Statement of Task: Congress directed the National Research Council (NRC), via HR 5667, to evaluate the quality of SBIR research and evaluate the SBIR program’s value to the agency mission. It called for an assessment of the extent to which SBIR projects achieve some measure of commercialization, as well as an evaluation of the program’s overall economic and noneconomic benefits. It also called for additional analysis as required to support specific recommenda- tions on areas such as measuring outcomes for agency strategy and performance, increasing federal procurement of technologies produced by small business, and overall improvements to the SBIR program.4 Responding to congressional request for a “comprehensive study of how the SBIR program has stimulated technological innovation and used small businesses to meet federal research and development needs” and make recommendations on still further improvements to the program, this study by the NRC represents the first, systematic external analysis of the program’s operations, challenges, and accomplishments over the 20 years of its history. It provides an empirical analy- sis of the operations of the program and assesses the quality of research projects conducted under SBIR, the commercialization of research, and the program’s contribution to accomplishing agency missions. To guide this study, the NRC drew together an expert committee that in- cluded eminent economists, small businessmen and women, and venture capital- ists. The membership of this committee is listed in the front matter of this volume. Given the extent of “green-field research” required for this study, the Steering Committee in turn drew on a distinguished team of researchers to, among other tasks, administer surveys and case studies, and to develop statistical information about the program. The membership of this research team is also listed in the front matter to this volume. This report is one of a series published by the National Academies in re- sponse to the congressional request. The series includes reports on the Small 3 See SBIR Reauthorization Act of 2000 (H.R. 5667—Section 108). 4 Chapter 3 of the Committee’s Methodology Report describes how this legislative guidance was drawn out in operational terms. National Research Council, An Assessment of the Small Business nnoation Research Program—Project Methodology, Washington, DC: The National Academies I Press, 2004. Access this report at .

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x PREFACE Business Innovation Research Program at the Department of Defense, the Depart- ment of Energy, the National Institutes of Health, and the National Science Foun- dation as well as an Overview Report that provides assessment of the program’s operations across the federal government. Other reports in the series include a summary of the 2002 conference that launched the study and that documented for the first time the enormous diversity in the SBIR program, and a summary of the 2005 conference on SBIR and the Phase III Challenge of Commercialization that focused on the DoD and NASA.5 PROJECT ANTECEDENTS The current assessment of the SBIR program follows directly from an earlier analysis of public-private partnerships by the National Research Council’s Board on Science, Technology, and Economic Policy (STEP). Under the direction of Gordon Moore, Chairman Emeritus of Intel, the NRC Committee on Government Industry Partnerships prepared 11 volumes reviewing the drivers of cooperation among industry, universities, and government; operational assessments of current programs; emerging needs at the intersection of biotechnology and information technology; the current experience of foreign government partnerships and op- portunities for international cooperation; and the changing roles of government laboratories, universities, and other research organizations in the national innova- tion system.6 This analysis of public-private partnerships included two published studies of the SBIR program. Drawing from expert knowledge at a 1998 workshop held at the National Academy of Sciences, the first report, The Small Business Innoa- tion Research Program: Challenges and Opportunities, examined the origins of the program and identified some operational challenges critical to the program’s future effectiveness.7 The report also highlighted the relative paucity of research on this program. Following this initial report, the DoD asked the NRC to assess the De- partment’s Fast Track Initiative in comparison with the operation of its regular SBIR program. The resulting report, The Small Business Innoation Research Program: An Assessment of the Department of Defense Fast Track Initiatie, was the first comprehensive, external assessment of the DoD’s program. The study, which involved substantial case study and survey research, found that the 5 See National Research Council, SBIR: Program Diersity and Assessment Challenges, Charles W. Wessner, ed., Washington, DC: The National Academies Press 2004; and National Research Council, SBIR and the Phase III Challenge of Commercialization, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2007. 6 For a summary of the topics covered and main lessons learned from this extensive study, see National Research Council, Goernment-Industry Partnerships for the Deelopment of New Technolo- gies: Summary Report, op. cit. 7 See National Research Council, The Small Business Innoation Research Program: Challenges and Opportunities, Charles W. Wessner, ed., Washington, DC: National Academy Press, 1999.

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xi PREFACE SBIR program was achieving its legislated goals. It also found that DoD’s Fast Track Initiative was achieving its objective of greater commercialization and recommended that the program be continued and expanded where appropriate. 8 The report also recommended that the SBIR program overall would benefit from further research and analysis, a perspective adopted by the U.S. Congress in requesting this assessment. ACKNOWLEDGMENTS On behalf of the National Academies, we express our appreciation and recognition for the insights, experiences, and perspectives made available by the participants of the conferences and meetings, as well as survey respondents and case study interviewees who participated over the course of this study. We are also very much in debt to officials from NASA, especially Carl Ray and Paul Mexcur, for their cooperation and assistance. The committee’s research team deserves major recognition for their instru- mental role in the preparation of this report. Thanks are due to David Finifter of the College of William and Mary, Michael Fogerty of Portland State University, and Julie Elston of Oregon State University. Robin Gaster of North Atlantic Re- search also deserves special recognition for the skills and insights he brought to the completion of the study. Without their collective efforts, amidst many other competing priorities, it would not have been possible to prepare this report. NATIONAL RESEARCH COUNCIL REVIEW This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures ap- proved by the National Academies’ Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the process. We wish to thank the following individuals for their review of this report: Robert Barnhill, Arizona State University; Bruce Marcus, TRW (Retired); Jeanne Powell, National Institute of Standards and Technology (Retired); and Robert Weiss, Physical Sciences, Inc. Although the reviewers listed above have provided many constructive com- 8 SeeNational Research Council, The Small Business Innoation Research Program: An Assess- ment of the Department of Defense Fast Track Initiatie, Charles W. Wessner, ed., Washington, DC: National Academy Press, 2000. Given that virtually no published analytical literature existed on SBIR, this Fast Track study pioneered research in this area, developing extensive case studies and newly developed surveys.

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xii PREFACE ments and suggestions, they were not asked to endorse the conclusions or recom- mendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Robert Frosch, Harvard University, and Robert White, Carnegie Mellon University. Appointed by the National Acad- emies, they were responsible for making certain that an independent examina- tion of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution. Jacques S. Gansler Charles W. Wessner

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